Werner has been treading water for the past six months, holding steady at $35.53. The stock also fell short of the S&P 500’s 7.5% gain during that period.

Is there a buying opportunity in Werner, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

We don't have much confidence in Werner. Here are three reasons why WERN doesn't excite us and a stock we'd rather own.

Why Do We Think Werner Will Underperform?

Conducting business in over a 100 countries, Werner (NASDAQ:WERN) offers full-truckload, less-than-truckload, and intermodal delivery services.

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. Regrettably, Werner’s sales grew at a sluggish 4.5% compounded annual growth rate over the last five years. This was below our standard for the industrials sector.

2. Free Cash Flow Margin Dropping

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.

As you can see below, Werner’s margin dropped by 5.1 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. Almost any movement in the wrong direction is undesirable because of its relatively low cash conversion. Werner’s free cash flow margin for the trailing 12 months was 5%.

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

Final Judgment

Werner falls short of our quality standards. With its shares lagging the market recently, the stock trades at 26.1× forward price-to-earnings (or $35.53 per share). This multiple tells us a lot of good news is priced in - you can find better investment opportunities elsewhere. We’d recommend looking at Meta, a top digital advertising platform riding the creator economy.

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