Today we have a moderately speculative idea.: take shares of the logistics company Hub Group (NASDAQ: HUBG), in order to capitalize on the growth in demand for its services.
Growth potential and validity: 12,5% behind 13 Months; 8% per year for 10 years.
Why stocks can go up: because logistics is in trend.
How do we act: we take shares now by 79,87 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
It's a logistics company, engaged in the transportation of goods and providing services in this area. According to the latest report, its revenue is divided into the following segments:
- Intermodal transportation - 56,5%.
- Logistics - 20,96%. Transport planning and management services.
- Intermediary services in the transportation market — 16,27%. Hub helps customers find the right third party carriers.
- Target delivery - 6,27%. In this segment, all cargo goes to one client.
According to the report, The company operates only in the USA.
According to the company's presentation, by industry, its revenue is divided as follows:
- Retail and e-commerce — 46%.
- Consumer goods - 34%.
- Long life products - 6%.
- Transport - 3%.
- Cars - 5%.
- Other - 6%.
Arguments in favor of the company
It's about time. In the summer, I had a cycle of successful investments on American carriers: Knight-Swift, Schneider National, Skirt, J. B. Hunt и C. H. Robinson. They all revolved around a strong demand for the services of logistics companies., and the logistical situation has not become easier since then. Considering all this, one can modestly hope, that the next couple of quarters will be quite successful for Hub.
small size. Hub has a capitalization of only 2.77 billion - this makes its shares very sensitive to the influx of investors. And such an influx is quite to be expected., given the great need of the American economy for the availability of carriers.
Can buy. Taking into account all of the above, it seems to me very likely that a company will be bought by a larger carrier. A big plus of Hub in the eyes of a potential buyer is its widespread use of digital technologies in work, allowing it to effectively scale its operations.
From the point of view of the larger J. B. Hunt, the monitored issuer is of great interest: P / E - 15.66 and P / S — 0,65. Strictly speaking, buying Hub would be a good addition to any major carrier's business.
Dividends. The company does not pay dividends, but I might as well start doing it., given its increased profitability, - let's say, near 2 $ per share per year, which would give good 2,5% per annum. Think, there may even be an activist investor, which will require it.
What can get in the way
Debts. The company has a lot of debt: 1,096 billion, of which 687 million must be repaid within a year. Basically, enough money at Hub's disposal to cover most of all debts: 159,784 million on accounts plus 704.512 million debts of counterparties.
Given the low margins of the company's business and its need to upgrade fixed assets, I would be preparing for an increase in debt burden, which will reduce the likelihood of tangible dividends. Although I hope, that I'm wrong.
Expenses. The company's total margin is only 4% from proceeds. It's basically a low-margin business.. Increase in the cost of driver labor, fuel and various materials threatens us with the erosion of the profitability of the company's business - to which investors will react, certainly, negatively.
What's the bottom line?
We take shares now by 79,87 $. And then there are two options:
- wait for growth until 90 $. This is noticeably more, than they asked for these shares at the beginning of the year - 86 $, but not too bold. Think, taking into account all the positive moments, we will wait for this in the next 13 Months;
- hold shares 10 years, as long as the company grows and ideally introduces high dividend payouts.
By the way,, the probability of buying a Hub by someone bigger seems to me the same in both cases.
