ArcBest (ARCB): Buy, Sell, or Hold Post Q1 Earnings?

ArcBest has gotten torched over the last six months - since November 2024, its stock price has dropped 44.3% to $64.20 per share. This may have investors wondering how to approach the situation.

Is there a buying opportunity in ArcBest, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think ArcBest Will Underperform?

Despite the more favorable entry price, we're swiping left on ArcBest for now. Here are three reasons why there are better opportunities than ARCB and a stock we'd rather own.

1. Demand Slipping as Sales Volumes Decline

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.

ArcBest’s units sold came in at 19,491 in the latest quarter, and they averaged 1% year-on-year declines over the last two years. 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 grow, factors that can hinder near-term profitability.

2. 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 ArcBest, its EPS declined by more than its revenue over the last two years, dropping 32.9%. This tells us the company struggled to adjust to shrinking demand.

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, ArcBest’s ROIC has unfortunately decreased. 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 ArcBest, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 10.1× forward P/E (or $64.20 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are more exciting stocks to buy at the moment. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.

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