What Is Going on With ODFL Shares?

Old Dominion Freight Line Inc.’s stock price has surged to a price of $301.58 today. Ending the day a 7.1% increase, ODFL shares outperformed the S&P500 and Dow Industrial composite indices by 4.7% and 4.9% respectively, closing in on their 52 week high of $341.73 Over the last 12 months, Old Dominion Freight Line is down 15.4%, and has outperformed the S&P 500 by 3.2%. Now, the large-cap Industrials company is 5.24% above its average target price of $286.56 and has an average analyst rating of hold.

Old Dominion Freight Line's trailing 12 month price to earnings (P/E) ratio is 26.0, which is its share price divided by its trailing earnings per share (EPS) of $11.62. The company has a forward P/E ratio of 26.0 based on its forward EPS of $11.59 -- which is an estimate of future earnings provided by management. The P/E ratio tells us how much investors are willing to pay for each dollar of the company's net earnings from its sales operations. By way of comparison, the average P/E ratio of the Industrials sector is 21.46, but a company's price can remain stable for a long time even if it is over or undervalued.

Company accountants calculate earnings by subtracting the costs of sales and overhead from its revenues. These metrics focus on the sales side of the company only -- it's important to remember that companies can have many other costs and sources of income that are independent from its core business. For example, a company may have extensive expenses such as rent and debt servicing, and on the other hand it may receive additional income from its investments and intellectual property.

So the earnings picture only shows a slice of the company's financial health. They also don’t represent actual inflows of cash, since revenues are calculated on the basis of product or service deliveries, as opposed to actual payments received. The importance of earnings is that they enable us to analyze the company’s growth and profitability over time.

Here is an overview of Old Dominion Freight Line’s operating margins, which are the percentage of net profit compared to total revenues:

Date Reported Total Revenue ($ MM) Operating Expenses ($ MM) Operating Margins (%) YoY Growth (%)
2021-12-31 5,256 383 26.47 17.18
2020-12-31 4,015 322 22.59 13.4
2019-12-31 4,109 352 19.92 n/a
  • Average operating margins: 23.0 %
  • Average operating margins growth rate: 15.3 %
  • Coefficient of variability (the lower the better): 14.3 %

Let’s contrast the operating margins with an overview of Old Dominion Freight Line’s gross margins, which only take into account expenses directly related to producing revenue (i.e. without overhead):

Date Reported Revenue ($ MM) Cost of Revenue ($ MM) Gross Margins (%) YoY Growth (%)
2021-12-31 5,256 3,481 33.77 10.36
2020-12-31 4,015 2,787 30.6 7.44
2019-12-31 4,109 2,939 28.48 n/a
  • Average gross margins: 31.0 %
  • Average gross margins growth rate: 8.9 %
  • Coefficient of variability (the lower the better): 8.6 %

Another metric for valuing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present value of the company if it were liquidated today (i.e. selling all assets and paying off all debts). Old Dominion Freight Line's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 9.0, so the company's assets may be overvalued compared to the average P/B ratio of the Industrials sector, which stands at 3.7.

ODFL's average free cash flow over the last few years is $625,011,666.70, which represents the sum of inflows and outflows of cash from all sources, including capital expenses.. This is the pool of liquidity that the company can use to reinvest in its business or pay out to its equity investors in the form of a dividend. Over the last twelve months investors in Old Dominion Freight Line have enjoyed a dividend yield of 0.4%.

Since it has a an inflated P/E ratio, an elevated P/B ratio, but a steady stream of strong cash flows, and consistent operating margins, Old Dominion Freight Line is probably fairly valued at current prices. Make sure to complement this brief quantitative review with a qualitative analysis of your own!

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.