The past six months have been a windfall for Saia’s shareholders. The company’s stock price has jumped 41.1%, hitting $486.96 per share. This run-up might have investors contemplating their next move.
Is now the time to buy Saia, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Saia Not Exciting?
Despite the momentum, we’re swiping left on Saia for now. Here are three reasons we avoid SAIA, plus one stock we’d rather own.
1. Weak Sales Volumes Indicate Waning Demand
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.
Saia’s tons shipped came in at 1.51 million in the latest quarter, and over the last two years, averaged 1.4% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. Breakeven Free Cash Flow Limits Reinvestment Potential
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Saia broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders. The divergence from its good operating margin stems from its capital-intensive business model, which requires Saia to make large cash investments in working capital and capital expenditures.
3. New Investments Fail to Bear Fruit as ROIC Declines
We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.
Unfortunately, Saia’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
Saia isn’t a terrible business, but it doesn’t pass our bar. After the recent surge, the stock trades at 37.7× forward P/E (or $486.96 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. Let us point you toward an all-weather company that owns household favorite Taco Bell.
Stocks We Would Buy Instead of Saia
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