PACCAR has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 10.2% to $109.50 per share while the index has gained 9.9%.
Is now the time to buy PACCAR, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.
Why Is PACCAR Not Exciting?
We're swiping left on PACCAR for now. Here are three reasons you should be careful with PCAR and a stock we'd rather own.
1. Core Business Falling Behind as Demand Declines
We can better understand Heavy Transportation Equipment companies by analyzing their organic 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 7.9% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests PACCAR might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
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 6%, close to its 8.9% annualized growth for the past five years. This projection doesn't excite us and suggests its newer products and services will not lead to better top-line performance yet.
3. EPS Took a Dip Over the Last Two Years
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.
Sadly for PACCAR, its EPS declined by more than its revenue over the last two years, dropping 19.6%. This tells us the company struggled to adjust to shrinking demand.
Final Judgment
PACCAR isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 21.8× forward P/E (or $109.50 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better stocks to buy right now. Let us point you toward our favorite semiconductor picks and shovels play.
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