Heartland Express trades at $10.36 per share and has stayed right on track with the overall market, gaining 14.4% over the last six months. At the same time, the S&P 500 has returned 11.3%.

Is now the time to buy Heartland Express, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think Heartland Express Will Underperform?

We're swiping left on Heartland Express for now. Here are three reasons you should be careful with HTLD and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Heartland Express’s sales grew at a tepid 5.8% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector.

2. Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Heartland Express’s margin dropped by 19.5 percentage points over the last five years. Continued declines could signal it is in the middle of an investment cycle. Heartland Express’s free cash flow margin for the trailing 12 months was 4.6%.

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, 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

We see the value of companies helping their customers, but in the case of Heartland Express, we’re out. That said, the stock currently trades at $10.36 per share (or a forward price-to-sales ratio of 1.1×). The market typically values companies like Heartland Express based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. Let us point you toward one of our top software and edge computing picks.

Stocks We Would Buy Instead of Heartland Express

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