Echo Global Stock: Oversold Selling on Trade Fears but Big Rally on Deal

Echo Global Stock: Oversold Selling on Trade Fears but Big Rally on Deal
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Echo Global Stock Will Rally on Positive Trade

The selling capitulation has wreaked havoc on the majority of stocks, specifically those in the small-cap end.

One particular segment that has witnessed excessive selling are stocks related to international trade. But while the risk is high, it’s time to have these stocks on your radar.

Echo Global Logistics, Inc. (NASDAQ:ECHO), a provider of transportation logistics solutions, is showing growth at a reasonable price, but Echo Global stock is down a staggering 40% over the last three months to levels that are beginning to look oversold.

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The fear with ECHO stock is the company’s dependence on global trade. Echo Global Logistics employs technology to aid companies with decisions regarding transportation and supply chain management.

And while the current global supply chain is under attack, the reality is that the world will continue to expand its trading routes for decades to come.

Echo Global Logistics may look risky at this time, but longer-term, the company has strong tailwinds.

On its chart, Echo Global stock stock could test lower support at around $19.60. However, the upside target of $29.00 or higher presents a decent risk-to-reward situation.

Chart courtesy of StockCharts.com

Why ECHO Stock Has Enticing Potential

Echo Global Logistics is delivering sound fundamentals, with growth in revenue; earnings before interest, tax, depreciation, and amortization (EBITDA) profits; and free cash flow (FCF).

A look at the table below shows Echo Global reporting four straight years of revenue growth.

From 2013 to 2017, the company’s revenue more than doubled. The compound annual growth rate (CAGR) during this time frame was an impressive 21.7%.

Year Revenue (Millions) Growth
2013 $884.2
2014 $1,170 32.7%
2015 $1,510 28.9%
2016 $1,720 13.5%
2017 $1,940 13.2%

(Source: “Echo Global Logistics Inc.,” MarketWatch, last accessed December 26, 2018.)

The outlook for Echo Global stock is dependent on the trade situation, but my optimistic side believes it will be resolved.

Revenue could ramp up by 25.8% to $2.4 billion in 2018 and by 6.3% to $2.6 billion in 2019. (Source: “Echo Global Logistics, Inc. (ECHO),” Yahoo! Finance, last accessed December 26, 2018.)

The EBITDA has been positive for five straight years and grew in three of the last four years.

Year EBITDA (Millions) Growth
2013 $33.9
2014 $43.6 28.6%
2015 $53.8 23.4%
2016 $47.6 -11.4%
2017 $52.8 10.8%

(Source: MarketWatch, op cit.)

Echo Global is also profitable on both a generally accepted accounting principles (GAAP) and adjusted basis. The results have been inconsistent, but the company saw a strong jump in 2017.

Year GAAP Diluted EPS
2013 $0.61
2014 $0.71
2015 $0.28
2016 $0.05
2017 $0.45

(Source: Ibid.)

Looking ahead, earnings growth is expected to continue.

The company is estimated to report an adjusted $1.78 per diluted share in 2018, versus $0.86 per diluted share in 2017. For 2019, earnings look like they will be flat at $1.79 per diluted share. (Source: Yahoo! Finance, op cit.)

The company is generating positive FCF, with growth in three of the last four years.

Year FCF (Millions) Growth
2013 $15.6
2014 $17.2 10.6%
2015 $56.1 226%
2016 $12.9 -77.1%
2017 $28.0 117.8%

(Source: MarketWatch, op cit.)

Analyst Take

A quick glance at Echo Global Logistics, Inc. shows a growing company dependent on global trade. If you believe the trade situation will be resolved, then ECHO stock is worth a look.

Echo Global stock trades at 10.97 times its 2019 EPS consensus. The price/earnings to growth (PEG) ratio of 0.33 is cheap and bodes well for the stock.