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Will SAIA Maintain its Skyrocketing Growth?

Key Points
Saia stock is experiencing a significant rise during Friday’s session, continuing a multi-month rally that has brought the stock to very high levels.
Despite the economic data affecting the company’s business drivers, management seems to be taking steps to mitigate the impact.
The market is rewarding these strategic moves by assigning a higher quality multiple to the stock.
5 stocks we like better than TFI International
Shares of Saia Inc. (NASDAQ:SAIA), a trucking and logistics company, are up by as much as 3% during Friday’s trading session. This strong performance at the end of the week indicates positive momentum for the company. The rise in the stock price follows the release of its second-quarter 2023 earnings results, which revealed some concerns about the business drivers.
Even though there have been some slowdowns in the company’s financials, the market is always forward-looking. The current rally in Saia’s stock reflects optimism about the business in the coming months. To understand the reasons behind this rally, it’s necessary to examine the increasing demand in the industry and why Saia is preferred over its competitors.
While investors should consider the possibility of a minor or temporary pullback, there are many reasons to hold onto the stock or even consider purchasing more. Analysts are providing conservative viewpoints about the future due to the slowdowns experienced by the company recently.
Earnings Results: A Glimpse into the Future
The trucking and shipping industry is directly affected by the business cycle of the US economy. As more people consume and businesses trade goods and inventory, the need for reliable transportation and strong logistics networks increases. The current cycle has been slowing down for the past eight months, as indicated by Saia’s earnings release.

The image above illustrates the long-term trends in the United States ISM manufacturing PMI readings. This survey reflects the monthly changes in underlying business activity. An index above 50 indicates economic growth, while a reading below 50 represents economic contraction. Since the index has been below 50 for the past eight months, investors in Saia could have predicted the slowdown in the company’s financial drivers.
Saia has reported a 6.8% annual decrease in net revenues and a 17.6% contraction in operating income. This was expected due to the contraction in the manufacturing sector of the economy for almost three quarters, which has significantly impacted activities like trucking and trade.
According to Saia CEO Fritz Holzgrefe, these slowdowns were a result of a “softer” economic environment compared to the previous year. However, educated investors would have anticipated this months in advance. Instead of remaining passive, the management focused on gaining market share to cushion the expected slowdown. This proactive approach proved to be a smart move.

Investors Like Growth
Understanding that Saia’s management is prioritizing gaining market share and improving efficiency in each shipment, as evidenced by the rising revenue per shipment, helps to explain the rally in the stock despite the decline in earnings.
A comparison between Saia’s stock performance and its competitor, TFI International (NYSE:TFII), provides insight into market sentiment. Saia has outperformed TFI International by 62.3% over the past twelve months, making it the favorite name in the market. However, investors are more interested in the future rather than past performance.
By analyzing future valuation multiples, such as the forward price-to-earnings ratio, investors can assess where markets expect future earnings quality to lie. Saia’s stock is currently trading at a forward P/E ratio of 29.8x, while TFI International is at a heavily discounted 15.7x ratio.
Although traditional value investors may argue that TFI is the better choice due to its lower valuation, a more practical perspective suggests that Saia’s higher price reflects its higher quality. The market has expressed its preference for Saia through the rally in the stock and the superior forward valuation multiples. This indicates that management is positioning the company for future growth and stability despite the challenging economic trend.

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