Old Dominion, Same Story

Growth stories are seductive little beasts. They can taunt and torment you on valuation and make you relax your margin-of-safety standards "just this one time." Of course, right after you do that, they hit a bump in the road, professional investors lose their freakin' minds, the stock is down, and you have a loss on your hands.

I'm not predicting doom and gloom for Old Dominion (Nasdaq: ODFL  ) by any means, but this is a company for which it's getting harder and harder for me not to buy the stock. If I would have just swallowed hard on the valuation back around year's end, I'd already have a nice little gain -- to say nothing of wishing I'd had the brains to just hang on back when I owned shares in '02-'03.

From a profit and performance perspective, there's still a lot to like here. Revenue was up more than 23%, and net income climbed 39%. A strong mix of shipment growth, higher-weight shipments, and decent pricing fueled the former. The latter was a product of better expense leverage -- about 90% of the company's growth came from service centers open longer than a year. And the operating ratio declined once again on a year-over-year basis (91.9 versus 92.7).

Looking out a bit, I can see this story setting up as a one-two punch. First, there's plenty more market share that Old Dominion can gain, particularly as it seems focused on a service-oriented model. Second, while the operating ratio has been improving, I think it could do even better once the center expansion program slows down a bit and the company dials in to more operating-efficiency improvements. After all, even given the differences from one company to the next, other operators, such as HeartlandExpress (Nasdaq: HTLD  ) and KnightTransportation (NYSE: KNX  ) , which focuses on refrigerated transport, suggest that operating-efficiency improvement is still possible.

So what about that valuation? Well, the stock seems to be below my fair-value estimate, though I confess that I might be guilty of juicing the growth estimates a bit too much. Still, well-run companies have this knack for surprising you and surpassing what you think they will (or can) do. So I'm going to take advantage of the mandatory 10-day wait here at The Motley Fool and see just how much I want to own this fast-growing trucker.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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