Over the past six months, Schneider’s shares (currently trading at $21.51) have posted a disappointing 12.4% loss, well below the S&P 500’s 13% gain. This was partly driven by its softer quarterly results and might have investors contemplating their next move.

Is now the time to buy Schneider, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.

Why Do We Think Schneider Will Underperform?

Even though the stock has become cheaper, we're cautious about Schneider. Here are three reasons there are better opportunities than SNDR and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Schneider’s 4.8% annualized revenue growth over the last five years was tepid. This fell short of our benchmark for the industrials sector.

2. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Schneider, its EPS declined by 10.2% annually over the last five years while its revenue grew by 4.8%. This tells us the company became less profitable on a per-share basis as it expanded.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Schneider’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Schneider falls short of our quality standards. After the recent drawdown, the stock trades at 22.8× forward P/E (or $21.51 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. We’d suggest looking at the most dominant software business in the world.

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