Expeditors has been treading water for the past six months, recording a small loss of 3.3% while holding steady at $116.55. The stock also fell short of the S&P 500’s 4.7% gain during that period.

We're sitting this one out for now. Here are three reasons why EXPD doesn't excite us and a stock we'd rather own.

Why Do We Think Expeditors Will Underperform?

Expeditors (NYSE: EXPD) offers air and ocean freight as well as brokerage services.

1. Long-Term Revenue Growth Disappoints

A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Regrettably, Expeditors’s sales grew at a sluggish 3.5% compounded annual growth rate over the last five years. This was below our standard for the industrials sector.

2. Low Gross Margin Reveals Weak Structural Profitability

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Expeditors has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 13.5% gross margin over the last five years. Said differently, Expeditors had to pay a chunky $86.50 to its suppliers for every $100 in revenue.

3. EPS Barely Growing

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Expeditors’s EPS grew at an unimpressive 7.3% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 3.5% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.

Final Judgment

We cheer for all companies making their customers lives easier, but in the case of Expeditors, we’ll be cheering from the sidelines. With its shares lagging the market recently, the stock trades at 21.9× forward price-to-earnings (or $116.55 per share). This valuation tells us a lot of optimism is priced in - we think there are better investment opportunities out there. We’d recommend looking at Uber, whose profitability just reached an inflection point.

Stocks We Would Buy Instead of Expeditors

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