Rush Enterprises (RUSHA): Buy, Sell, or Hold Post Q3 Earnings?

Rush Enterprises has had an impressive run over the past six months as its shares have beaten the S&P 500 by 14.3%. The stock now trades at $62.68, marking a 24.3% gain. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now the time to buy Rush Enterprises, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think Rush Enterprises Will Underperform?

Despite the momentum, we're cautious about Rush Enterprises. Here are three reasons you should be careful with RUSHA and a stock we'd rather own.

1. Revenue Growth Flatlining

Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Rush Enterprises’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

2. Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Rush Enterprises’s revenue to drop by 5.4%, a decrease from its 9.9% annualized growth for the past five years. This projection doesn't excite us and implies its products and services will face some demand challenges.

3. EPS Took a Dip Over the Last Two Years

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

Sadly for Rush Enterprises, its EPS declined by 12% annually over the last two years while its revenue was flat. This tells us the company struggled to adjust to choppy demand.

Final Judgment

We cheer for all companies making their customers lives easier, but in the case of Rush Enterprises, we’ll be cheering from the sidelines. With its shares outperforming the market lately, the stock trades at 17.5× forward P/E (or $62.68 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are superior stocks to buy right now. We’d suggest looking at the most entrenched endpoint security platform on the market.

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