ArcBest trades at $79.52 per share and has stayed right on track with the overall market, gaining 16.6% over the last six months. At the same time, the S&P 500 has returned 13.6%.

Is there a buying opportunity in ArcBest, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.

Why Do We Think ArcBest Will Underperform?

We're sitting this one out for now. Here are three reasons you should be careful with ARCB and a stock we'd rather own.

1. Sales Volumes Stall, Demand Waning

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful Ground Transportation company because there’s a ceiling to what customers will pay.

Over the last two years, ArcBest failed to grow its units sold, which came in at 21,095 in the latest quarter. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests ArcBest might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

2. EPS Took a Dip Over the Last Two Years

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

Sadly for ArcBest, its EPS declined by more than its revenue over the last two years, dropping 23.1%. This tells us the company struggled to adjust to shrinking demand.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, ArcBest’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

ArcBest falls short of our quality standards. That said, the stock currently trades at 20.4× forward P/E (or $79.52 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now. Let us point you toward one of our top software and edge computing picks.

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