PACCAR has been treading water for the past six months, recording a small return of 2.7% while holding steady at $132.23. The stock also fell short of the S&P 500’s 8.9% gain during that period.
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Why Is PACCAR Not Exciting?
We’re sitting this one out for now. Here are three reasons we avoid PCAR, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, PACCAR grew its sales at a tepid 4.6% compounded annual growth rate. This was below our standard for the industrials sector.
2. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
PACCAR’s EPS grew at 7.2% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 4.6% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
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).
Unfortunately, PACCAR’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
PACCAR’s business quality ultimately falls short of our standards. With its shares trailing the market in recent months, the stock trades at 20.1× forward P/E (or $132.23 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We’re pretty confident there are superior stocks to buy right now. We’d suggest looking at a top digital advertising platform riding the creator economy.
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