ZTO Express Down 14% In 3 Months: What Led To The Drop?

Shares of ZTO Express (Cayman) Inc. (NYSE:ZTO) have lost 14.8% in the past three months due to multiple headwinds.

Reasons for Dismal Performance

High operating expenses have persistently put pressure on the bottom line for quite some time. In third-quarter 2018 results, total operating expenses of this China-based company were up 21% to RMB233.6 million.

Moreover, ZTO Express’ investments toward the expansion of its portfolio will increase costs, which are likely to weigh on the bottom line moving ahead.

Furthermore, stringent government regulations and strict policies of the Chinese market are a major hindrance to ZTO Express’ business. Also, the domestic express delivery market is highly competitive due to the presence of big players like SF Express and STO Express. Given this backdrop, the stock might be adversely impacted if competition persists.

Additionally, the stock’s valuation is not attractive. The company’s trailing 12-month price-to-earnings ratio of 21 compares unfavorably with the industry’s 19.5.

ZTO Express’ trailing 12-month return on equity also undermines growth potential. The company’s ROE of 16% gradually declined in the past year compared with the industry’s ROE of 16.8%.

Bearish Readings & Zacks Rank

The negativity around the stock can be gauged from the Zacks Consensus Estimate being revised 18.5% downward in the past 60 days for current-quarter earnings.

Moreover, the company’s Momentum Score of C highlights short-term unattractiveness.

The bearish Zacks Rank #4 (Sell) carried by ZTO Express reflects these headwinds. The unfavorable rank implies that investors should get rid of the stock from their respective portfolios. In fact, stocks with a Zacks Rank #4 or 5 (Strong Sell) are likely to underperform the broader market over the next one to three months.

Stocks to Consider

A few better-ranked stocks in the broader Transportation sector are CSX Corporation (NASDAQ:CSX) , Canadian Pacific Railway Limited (NYSE:CP) and Hertz Global Holdings, Inc. (NYSE:HTZ) . While Hertz Global carries a Zacks Rank #2 (Buy), CSX Corporation and Canadian Pacific sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of CSX Corporation, Canadian Pacific and Hertz Global have gained 13.5%, 14.4% and 14.1% in the last six months, respectively.

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