Over the past six months, PACCAR’s stock price fell to $92.01. Shareholders have lost 12.1% of their capital, disappointing when considering the S&P 500 was flat. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy PACCAR, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is PACCAR Not Exciting?
Even with the cheaper entry price, we don't have much confidence in PACCAR. Here are three reasons why we avoid PCAR and a stock we'd rather own.
1. Slow Organic Growth Suggests Waning Demand In Core Business
Investors interested in Heavy Transportation Equipment companies should track organic revenue in addition to reported revenue. This metric gives visibility into PACCAR’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, PACCAR’s organic revenue averaged 2.5% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect PACCAR’s revenue to drop by 8.7%, a decrease from its 5.9% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will see some demand headwinds.
3. Recent EPS Growth Below Our Standards
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
PACCAR’s weak 1.7% annual EPS growth over the last two years aligns with its revenue trend. This tells us it maintained its per-share profitability as it expanded.
Final Judgment
PACCAR’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 15.3× forward P/E (or $92.01 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. Let us point you toward the Amazon and PayPal of Latin America.
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