Shares of less-than-truckload trucker Old Dominion Freight Line (NASDAQ: ODFL) fell 10.2% through 1:15 p.m. ET despite largely meeting market expectations for its first-quarter earnings this morning.
Heading into the quarter, analysts had forecast Old Dominion would earn $1.34 per share on sales of $1.47 billion. As it turned out, earnings were $1.34, and revenue only just missed expectations at $1.46 billion. So are investors overreacting here?
Old Dominion Freight Line's Q1 earnings report
Not necessarily, no. You see, expectations for Old Dominion Freight Lines have been running pretty hot, with most analysts agreeing the company will grow earnings at about 23% annually over the next five years. It's this expectation that the stodgy shipping stock will turn out to actually be a growth stock that explains why Old Dominion has been outperforming the S&P 500 lately, driving its stock price up to nearly 40 times earnings today, up 44% over the last 52 weeks.
But here's the thing: Old Dominion didn't grow anywhere near 23% in Q1. Despite mostly meeting expectations, its earnings growth was actually closer to 4%, and its sales growth was barely 1%. CEO Marty Freeman called these results "solid," but investors were apparently hoping for more.
Is Old Dominion stock a buy?
They may have to wait a while to get it.
Freeman noted that the U.S. economy remains "soft" and, while he thinks "overall demand for our service may be improving" (emphasis added), the company still faces "operating challenges" that may hold growth in check. Nor did Old Dominion provide investors specific guidance in its earnings report for sales or earnings later this year, to suggest that the hoped-for growth is right around the corner.
So what are investors left with? A stock with a price-to-earnings ratio of 40 that might grow 23% eventually, but actually did just grow earnings 4% instead. Unfortunately, that's not the kind of story that's likely to get this stock growing again anytime soon.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Old Dominion Freight Line. The Motley Fool recommends the following options: long January 2026 $195 calls on Old Dominion Freight Line and short January 2026 $200 calls on Old Dominion Freight Line. The Motley Fool has a disclosure policy.
