Schneider has been treading water for the past six months, recording a small return of 4.4% while holding steady at $22.68. The stock also fell short of the S&P 500’s 26.5% gain during that period.
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Why Do We Think Schneider Will Underperform?
We're swiping left on Schneider for now. Here are three reasons we avoid SNDR and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Schneider’s sales grew at a sluggish 4% compounded annual growth rate over the last five years. This was below our standard for the industrials sector.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Schneider, its EPS declined by 8.8% annually over the last five years while its revenue grew by 4%. This tells us the company became less profitable on a per-share basis as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative 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, Schneider’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
We cheer for all companies making their customers lives easier, but in the case of Schneider, we’ll be cheering from the sidelines. With its shares underperforming the market lately, the stock trades at 23.3× forward P/E (or $22.68 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better investments elsewhere. Let us point you toward the Amazon and PayPal of Latin America.
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