3 Reasons LSTR is Risky and 1 Stock to Buy Instead

Shareholders of Landstar would probably like to forget the past six months even happened. The stock dropped 26% and now trades at $136.36. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Landstar, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think Landstar Will Underperform?

Even though the stock has become cheaper, we don't have much confidence in Landstar. Here are three reasons why you should be careful with LSTR 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 put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Landstar’s 3.9% annualized revenue growth over the last five years was sluggish. This was below our standard for the industrials sector.

2. EPS Growth Has Stalled

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.

Landstar’s flat EPS over the last five years was below its 3.9% annualized revenue growth. 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

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. Unfortunately, Landstar’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Landstar doesn’t pass our quality test. After the recent drawdown, the stock trades at 23.5× forward P/E (or $136.36 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. Let us point you toward a top digital advertising platform riding the creator economy.

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