 | Alpesh Patel
Trading Champion |
Welcome to this week's Stock of the Week. We're changing things up and looking at a reader-submitted stock. The company is C.H. Robinson Worldwide (CHRW). It's one of the largest logistics companies in the world. It has more than $28 billion in freight under management and makes more than 20 million shipments annually. The company operates in two major segments... North American surface transportation and global forwarding. A significant focus is domestic freight brokerage, which generated 57% of 2021 net revenues. This area mostly reflects truck brokerage but also some rail brokerage as well. The firm also operates a large air and ocean forwarding division. That's important because it shows some degree of diversification in transportation routes. The company also has geographic diversification. The remainder of its revenue comes from European truck brokerage. In the first quarter of 2022, C.H. Robinson grew its operating margins year over year in all segments. Are you surprised? Of course not. There are massive supply-side bottlenecks. There's a lot of demand as global GDP increases. [Somebody recently decided to buy a LOT of gold. And I think I know why... Click here now.] Here's how the financials look... The stock has been relatively flat so far this year. It's off a little bit - not as much as the broader market - but off a slight bit. It was up 14% last year and 20% the year before. So it hasn't accelerated the way you'd expect this year. This might be partly a reflection of cash flow. It's got a cash return on capital invested (CROCI) of only 0.6%. So it's not generating a lot of cash relative to the immense amount of capital that goes into running this type of business. That in and of itself is not necessarily a problem. It's just that companies in the top quartile by CROCI tend to do better than companies that do not meet my Growth-Value-Income rating. That is my proprietary algorithm for calculating the valuation of a company, the revenue growth of a company, the profitability growth of a company, its dividend yields and momentum. C.H. Robinson scores only a 5. That's below my minimum threshold of 7. So that's a miss. Sortino is a measure of reward versus risk. At 0.3, the average returns here are not justified by the volatility in the price, I'm afraid. I ideally want a Sortino above 1, but I'll even take a Sortino above 0.5. But look, 0.3, it's not too bad. Return alpha is good. The stock has exceeded market performance recently, so that's not too bad. Volatility is good. It's only 12%. In this market, I'm putting a lot of weight on lower volatility. So the company does have some good things going for it. Indeed, it could be one of those companies that is going flat at the moment but may well take off as we go forward. It's just sort of a latent beast hanging around the levels it first touched in 2018. Yet it's gone nowhere for four years in this environment... Why the heck isn't it moving higher? Like I said, I think there is some concern about cash flow. What other concerns might there be? Yes, total assets have been rising. Pretax profit dipped for a few years but has spiked up again. But maybe the market just doesn't believe that the company's turnover will stay put. You can see there's a cash flow problem when you look at the operating cash flow. It used to be a lot better, so maybe it will revert back to the mean. But there are just too many maybes and ifs and so on. Part of the cash flow problem seems to be from gearing, or borrowing, which has spiked up somewhat. That could have been because during COVID-19, borrowing had to go up... and now the company is making up for it, a bit like the airlines. They're making up for lost time. A forecast P/E multiple of just 13 is below the three-year average. That suggests the profitability of the company is not reflected in its current share price or even its forecasted share price. That's a positive for the company. Unfortunately, there are just a few too many questions for me. When I look at the price chart, the momentum indicators tend to be going sideways. It's almost as if the market hasn't decided which direction to take this in. Should it go 10% higher, or should it go 10% lower? It's just not clear enough for me. Don't get me wrong... even when things look absolutely clear, it doesn't mean a stock will necessarily go up. It's just that this one has too many question marks for me. Again, that's not to say that it might not go up. It's just that I need to feel a bit more comfortable about a stock than I do about this one. So for the viewer who sent it in, thank you very much. I really appreciate it, and I look forward to covering more such stocks. Send your stocks to mailbag@manwardpress.com. As always, you can see all of my analysis - with more charts and more data - by clicking here or on the image below. And thank you to all of you who are subscribers to GVI Investor. Obviously, it's been a volatile year. Keep an eye out for some additional market updates from me in the weeks ahead. I'm going to go through the latest data from the banks, the analysts and so on. You're going to get a heck of a lot of information. So stay tuned. Happy hunting, Alpesh Want more content like this? | | | |
Alpesh Patel | Trading ChampionAlpesh Patel is an award-winning hedge fund and private equity fund manager, international bestselling author, and entrepreneur. He is the founder and CEO of Praefinium Partners, a Financial Times top FTSE 100 forecaster, and a senior Dealmaker in the U.K.'s Department for International Trade. As a recognized authority on fintech, online trading and venture capital, his past and current client list includes American Express, Merrill Lynch HSBC, Charles Schwab, Goldman Sachs, Barclays... and more. | | |
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