What are we looking for?
According to the American Trucking Association, 80 per cent of North American communities receive their goods exclusively by truck. Trucks ship 70 per cent of the total North American tonnage, and collect 83 per cent of shipping revenues. Since the drop in crude oil prices means lower costs for the industry, my colleague Rob Belanger and I thought we would take a drive through the trucking sector.
The screen
Our companies had to have a market capitalization of over $250-million (U.S.) and we sorted them from the largest to the smallest.
The EV/EBITDA ratio, where enterprise value is divided by the earnings before interest, taxes, depreciation and amortization, is used to determine the value of a company. This metric takes debt into account, whereas other value measures, such as the price-to-earnings ratio, do not. A low EV/EBITDA indicates a company could be undervalued.
We are looking for a high number in the sales growth category, and only companies with a positive sales growth in the past 12 months are shown.
Operating margin is a measurement of what portion of a company's revenue is left over after paying for variable costs, such as wages and inventory. If a company has an operating margin of 10 per cent, it means that it makes 10 cents before interest and taxes for every dollar of sales.
The capex (capital expenditure) to sales ratio highlights what percentage of sales are being used to grow the business. Generally, we are looking for a high number.
The net debt/EBITDA is a debt ratio that shows how many years it would take a company to pay back its debt if its net debt and EBITDA are held constant. We omitted companies with a net debt/EBITDA of more than three years. If a company has more cash than debt, the ratio can be negative.
Return on equity (ROE) measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. Companies had to have an ROE greater than 5 per cent.
What did we find?
Two companies scored better than the averages in five of the six categories. Based in Thomasville, N.C., Old Dominion Freight Line owns 6,400 tractors and 19,400 trailers that deliver goods throughout the world. North Liberty, Iowa-based Heartland Express Inc. provides short to medium hauls throughout the United States and long hauls east of the Rocky Mountains.
Investors should contact an investment professional or conduct further research before investing in any of these companies.
Michael Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high-net-worth clients.