To The Moon

$Old Dominion Freight Lines(ODFL)$

The U.S. economy is powered by trucks. Every day, millions of tons of goods move across the country through a vast and complex network of roads and highways, and at the heart of this system sits Old Dominion Freight Line (NASDAQ: ODFL) — a dominant player in the less-than-truckload (LTL) sector. Known for its operational excellence and industry-leading margins, Old Dominion has been a favorite of long-term investors.

However, as we move further into what appears to be a cyclical downturn in freight demand, earnings have begun to roll over and the stock has retreated from its lofty highs. The question investors now face is whether this pullback represents a buying opportunity or simply the beginning of a more pronounced decline. In this article, we examine Old Dominion’s business model, its cyclicality, the risks of buying too soon, and why patient investors may ultimately be rewarded.

Overview: Old Dominion Freight Line

Old Dominion is a trucking company, and their long-term earnings trend has been solidly upward — that’s the green shaded area you see here on the chart. Now, let’s strip out dividends and take a closer look at the cyclicality of the business, particularly during the Great Recession, to get a feel for how resilient it is.

During 2008–2009, earnings fell by about 50% — almost to the dot. In most sectors, that level of decline would prompt me to treat the business as cyclical rather than stable. Transportation companies are inherently cyclical, and Old Dominion is right on the borderline. However, it’s worth noting the stock price itself didn’t fall as much as the earnings.

Even though earnings were moderately cyclical, the stock price was no more volatile than the broader S&P 500, which fell over 60% in the same period. And earnings recovered fully within just one year. That quick recovery suggests Old Dominion, as one of the larger players, has some resilience.

Because of this nuance, I’m going to analyze it using my standard earnings-based method, but with adjustments to account for its cyclical tendencies and the behavior of earnings during recessions.

Key Pitfalls to Avoid

One common mistake investors make here is focusing too narrowly on the P/E ratio during a downturn.

If you looked at Old Dominion in late 2009, after earnings had fallen 50%, the P/E was around 33. At first glance, that seems high — but earnings rebounded more than 100% the following year. Buying at that “expensive” P/E turned out to be the right move, since the stock price doubled within a couple of years.

Conversely, if you had waited for the P/E to look “normal,” you’d have ended up buying much higher. That’s a key dynamic to keep in mind when analyzing cyclical businesses like this one — you need to anticipate the earnings recovery before it appears in the numbers.

A Freight Titan with a Proven Track Record

Old Dominion Freight Line has built its reputation as one of the most efficient and profitable LTL carriers in the United States. Unlike full truckload (FTL) carriers, which transport a single shipper’s load directly from origin to destination, LTL carriers consolidate freight from multiple customers into a single truckload. This model requires significant operational sophistication, investment in terminals, and a culture of precision.

ODFL has excelled on all these fronts. Over the past two decades, the company has consistently grown its earnings, delivered exceptional return on invested capital (ROIC), and expanded its network of service centers while maintaining best-in-class operating ratios. This steady upward trajectory was turbocharged during the COVID-19 pandemic as demand for goods soared and supply chain constraints allowed pricing power to flourish.

Yet, as the pandemic-era stimulus fades and the goods economy softens under the weight of higher interest rates, ODFL is seeing declining earnings for the first time in years — a reminder that even the best operators are not immune to macroeconomic cycles.

Cyclicality in the Trucking Industry: Friend or Foe?

Trucking, by its nature, is a cyclical business. Demand rises and falls in line with the broader economy, and capacity tends to lag, leading to sharp swings in freight rates and carrier profitability. For ODFL, the last true test of a deep recession came during 2008–2009, when earnings fell nearly 50% from their pre-crisis peak.

Notably, however, ODFL’s share price also declined roughly 50% during the Great Financial Crisis — a drop similar to the broader market. And in a testament to its resiliency, the company’s earnings rebounded within a year, underscoring how quickly a high-quality operator can recover when economic conditions stabilize.

This historical performance provides a useful framework for today’s investors. Even though earnings have begun to decline from the pandemic peak, the magnitude of the current downturn so far has been more modest than 2008–2009. That said, it’s critical not to misread the company’s price-to-earnings (P/E) multiple at cyclical troughs. As earnings compress, the P/E ratio can appear inflated — but that does not necessarily mean the stock is overvalued if earnings are poised to recover.

The Danger of Catching a Falling Knife

While the company’s long-term fundamentals remain strong, the stock has not yet reached what most would consider an attractive valuation. ODFL still trades at over 30 times trailing earnings, and around 25 times forward estimates — well above the historical multiples seen at prior cycle lows.

Investors who mistake today’s high P/E ratio as a signal to sell outright may also miss the forest for the trees. The elevated multiple is more a function of temporarily depressed earnings than excess market exuberance. But equally dangerous is assuming that simply because the stock is down 20–30% from its high, it’s necessarily a bargain.

History suggests that the best time to buy ODFL is during the depths of an earnings cycle when sentiment is at its nadir and the stock has fallen closer to 50% from its peak. At present, both earnings and price have only partially corrected, leaving the stock in something of a valuation no-man’s land.

Why Patience Is Key in Cyclical Investing

Cyclical stocks like Old Dominion reward patient investors who have the discipline to wait for truly distressed prices. The nature of the trucking industry all but ensures that periods of overcapacity and falling rates will come — and with them, opportunities for the contrarian buyer.

Moreover, buying too early in a downturn can result in years of subpar returns. During the 2008–2009 downturn, ODFL traded at over 30 times trough earnings — similar to today — but patient investors who waited for the stock to bottom around 12–13 times normalized earnings were rewarded handsomely as the stock rose more than 300% in the subsequent cycle.

The lesson? Even quality companies become attractive investments only when purchased at the right price.

The Macro Backdrop: Headwinds Persist

Today’s economic environment remains challenging for the freight industry. Higher interest rates have dampened consumer spending on goods, housing activity is subdued, and inventory levels remain elevated in some sectors. Tariff uncertainty and geopolitical instability have also complicated supply chain planning for many customers.

While the economy has so far avoided a full-blown recession, growth remains sluggish, and the risk of a downturn lingers. For ODFL, that means the near-term earnings outlook is likely to remain under pressure, and the stock could face further downside if the economy weakens further.

That said, ODFL’s competitive advantages — superior service, efficient operations, and a strong balance sheet — position it to gain market share during downturns and emerge even stronger when the cycle turns.

A Look Back: Valuation Discipline Works

It’s worth noting that disciplined valuation analysis has paid off with ODFL in the past. In July 2023, an article on Seeking Alpha flagged ODFL as extremely overvalued, and indeed the stock has underperformed the S&P 500 by nearly 50 percentage points since then. Investors who trimmed or sold at those elevated levels avoided significant opportunity cost and can now watch patiently for a better re-entry point.

This is a key principle in cyclical investing: profits are made on the buy, not the sell. Buying too early — even in a high-quality company — can leave investors with years of mediocre returns.

Verdict: Hold (with a bias to Sell if better opportunities exist)

ODFL remains a high-quality company with a stellar long-term track record and a dominant position in the less-than-truckload (LTL) sector. However, the stock still trades at a premium to intrinsic value, and earnings are cyclically declining after the COVID boom. Investors who already own it can hold (and consider trimming), but it is not an attractive buy at current levels, and those looking to enter should wait for a much better price.

Intrinsic Value Estimate: $80 per share (based on normalized, recession-adjusted earnings)

This estimate assumes:

• Peak normalized earnings of ~$6.09/share.

• A recession-adjusted P/E of ~13 (in line with prior trough valuations).

• Anticipated mid-to-high single-digit long-term earnings growth once normalized.

Suggested Entry Price: ≤ $80/share

• At $80 or below, the stock would reflect a ~50% decline from current highs and price in a full cyclical downturn.

• This entry price would offer an attractive margin of safety while positioning the investor to benefit from an eventual cyclical rebound.

Valuation

So where does Old Dominion stand today?

The stock has already come down roughly 30% from its highs, which is encouraging from a valuation standpoint. I don’t own it yet, but given the company’s long-term quality, it’s on my watchlist.

The earnings bump in 2021–2022 was driven by COVID-related supply chain disruptions and stimulus effects, which have since faded. Earnings have declined for three straight years, but in my view, this is more of a normalization than a true recession-driven downturn.

If the economy picks up in the next year or so, that normalization should complete — and the company’s future earnings trajectory will depend on the broader economic cycle from here.

On my spreadsheet model, I’m currently using peak earnings of $6.09 per share — the high mark from the COVID boom — as the cyclical peak. From there, I calculate two buy-price scenarios:

✅ My standard earnings-based buy price, assuming 10% growth after this year, comes in around $79/share.

✅ My recession-adjusted buy price, based on what happened during the 2008–2009 cycle, is also about $79/share.

Right now, earnings estimates continue to come down — the forward estimate is already below where it was when I last updated my model — so my standard buy price will keep falling if earnings disappoint further.

The Big Picture

The stock is currently about 20% off its highs, while earnings are about 20% off peak levels. If earnings fall another 30% over the next year and we hit a recession, I can easily see the stock price dropping another 20–30%, which would bring it into my buy range.

At that point, sentiment will likely be extremely negative — as it was in 2009 — but that’s when patient investors can find great opportunities. The key is to have your plan in place before that moment comes.

I actually wrote a sell rating article on Old Dominion two years ago for Seeking Alpha, noting it was “extremely overvalued” at the time. Since then, the stock has underperformed the S&P 500 by almost 50 percentage points. That call aged well — and highlights the value of avoiding overvalued stocks even in high-quality businesses.

What’s Next?

Right now, Old Dominion is no longer in extreme overvaluation territory, but in my view it’s still not attractive enough to justify jumping in. It’s still underperforming economically, and macro conditions remain weak for the goods economy.

If the stock falls another 30–50%, I’ll reassess — but even if it never gets there, the discipline of waiting for the right price protects capital and keeps options open.

In the meantime, cash has been earning 5%+ over the past two years — proving that patience is often the best short-term “investment.”

Final Thoughts

Old Dominion is a strong business in a cyclical industry, with a track record of rebounding quickly after downturns. For long-term investors, it’s worth watching — but only at the right price.

If you had bought it during the 2009 bottom and held through 2021, you’d have made 300%+ gains. Even if you bought it at a reasonable dip and sold when it became overvalued in 2022, you could still have captured a huge return.

The key is discipline: don’t overpay, and don’t rush in just because the stock is “off its highs.” Be patient, wait for the market to get truly pessimistic, and then strike.

I hope you found this analysis helpful — if so, please like and subscribe, and feel free to leave a comment below with another stock you’d like me to cover.

Key Takeaways:

1. ODFL remains a best-in-class LTL carrier with a stellar track record, but it is still trading above fair value.

2. Earnings and price have begun to decline, but the stock is not yet at truly distressed levels seen in prior cycles.

3. Fair value estimate: ~$80/share, implying further downside potential before it becomes an attractive buy.

4. Verdict: Hold for existing investors, avoid new purchases until a better entry point emerges.

5. Patience is key in cyclical investing — quality companies are only great investments at the right price.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub