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THREE REASONS TO AVOID HTLD AND ONE STOCK TO BUY INSTEAD

StockStory - StockStory - Thu Nov 28, 3:51AM CST


Heartland Express has followed the market’s trajectory closely, rising in tandem
with the S&P 500 over the past six months. The stock has climbed by 10.3% to
$12.56 per share while the index has gained 13%.



Is now the time to buy Heartland Express, or should you be careful about
including it in your portfolio? Dive into our full research report to see our
analyst team’s opinion, it’s free.

We're sitting this one out for now. Here are three reasons why you should be
careful with HTLD and a stock we'd rather own.


WHY IS HEARTLAND EXPRESS NOT EXCITING?

Founded by the son of a trucker, Heartland Express (NASDAQ:HTLD) offers
full-truckload deliveries across the United States and Mexico.


1. OPERATING MARGIN FALLING

Operating margin is one of the best measures of profitability because it tells
us how much money a company takes home after procuring and manufacturing its
products, marketing and selling those products, and most importantly, keeping
them relevant through research and development.

Looking at the trend in its profitability, Heartland Express’s operating margin
decreased by 14.3 percentage points over the last five years. Even though its
historical margin is high, shareholders will want to see Heartland Express
become more profitable in the future. Its operating margin for the trailing 12
months was breakeven.


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 Heartland Express, its EPS declined by 17.8% annually over the last
five years while its revenue grew by 13.4%. 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

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 typically prefer to invest in companies with high returns because it means
they have viable business models, but the trend in a company’s ROIC is often
what surprises the market and moves the stock price. Heartland Express’s ROIC
has decreased significantly over the last few years. Paired with its already low
returns, these declines suggest its profitable growth opportunities are few and
far between.


FINAL JUDGMENT

Heartland Express isn’t a terrible business, but it doesn’t pass our bar. That
said, the stock currently trades at 20x forward EV-to-EBITDA (or $12.56 per
share). This valuation tells us it’s a bit of a market darling with a lot of
good news priced in - you can find better investment opportunities elsewhere.
We’d recommend looking at Chipotle, which surprisingly still has a long runway
for growth.


STOCKS WE WOULD BUY INSTEAD OF HEARTLAND EXPRESS

The Trump trade may have passed, but rates are still dropping and inflation is
still cooling. Opportunities are ripe for those ready to act - and we’re here to
help you pick them.

Get started by checking out our Top 5 Strong Momentum Stocks for this week. This
is a curated list of our High Quality stocks that have generated a
market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia
(+2,691% between September 2019 and September 2024) as well as under-the-radar
businesses like Comfort Systems (+783% five-year return). Find your next big
winner with StockStory today for free.


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