Old Dominion Stock: Shares Are a Bargain Even Though They Don't Look It

Key Points

• Old Dominion's August update showed weaker volumes but strong pricing.

• The company is investing heavily while returning cash, positioning for the next cycle.

• Shares still trade at a premium -- but that premium arguably looks bigger than it really is.

• 10 stocks we like better than Old Dominion Freight Line ›

Shares of Old Dominion Freight Line (NASDAQ: ODFL) initially slipped after the less-than-truckload (LTL) freight company provided its typical August operating update for its third quarter (though the stock recovered by the end of the trading day). Extending negative trends in Q2, the August update showed that revenue per day declined and volumes contracted, raising concerns that the freight slump is dragging on longer than expected.

The disappointing update, however, also underscored an important theme for the bulls: Old Dominion's discipline on pricing and service hasn't wavered. And management remains confident that when the economy recovers, it stands to benefit.

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It's impossible to know when this period of weak shipment demand will end, but it's providing patient investors a buying opportunity in the meantime.

Image source: Getty Images.

Disappointing key metrics

The company's August snapshot showed revenue per day down 4.8% year over year. LTL tons per day fell 9.2%, driven by an 8.2% drop in shipments per day and a 1.2% decline in weight per shipment. Those are meaningful headwinds -- and they are largely worse than what the company reported in Q2, explaining the market's reaction to the update.

For context, Q2 tons per day were down 7.7%, and shipments per day slipped 6.7%, so the August update shows the downturn in freight has actually deepened. That sequential deterioration suggests the hoped-for stabilization in volumes hasn't materialized yet. Investors were likely bracing for weak numbers, but the sharper declines relative to last quarter highlight how challenging the environment remains.

For a carrier as efficient as Old Dominion, even small changes in tonnage and shipment counts have an outsize effect on margins, which likely explains why the stock initially fell sharply on the news. Consider how Q2 revenue fell 6.1% year over year, and earnings per share declined 14.2%.

With lower volumes, deleveraging pushed the operating ratio (operating expenses as a percent of revenue) to 74.6% from 71.9% a year ago. Even so, Old Dominion still delivered a 99% on-time service level and maintained a cargo claims ratio (what it pays out in claims) of just 0.1%. That consistency shows how the company keeps strengthening its position despite cyclical pressure.

The key positive offset in Old Dominion's August update is pricing. LTL revenue per hundredweight increased 4.5% in the quarter to date and 4.7% excluding fuel surcharges. By protecting yield even as freight slows, Old Dominion is doing what it has always done best: leveraging its reputation for reliability and premium service to hold price.

Management also pointed to ongoing softness in demand but emphasized the company's ability to handle more freight when the economy improves.

Shares are cheaper than they look

The common knock on Old Dominion is that its valuation rarely looks cheap. But investors should keep in mind that, with tonnage sliding and the operating ratio rising, today's numbers can make the stock's premium valuation multiple look stretched. When sales pick back up, Old Dominion is able to tap into its excess capacity; its operating ratio plummets and earnings soar.

So, by continuing to protect pricing, expand its service center footprint, and keep its balance sheet flexible, the trucking business is setting up for stronger earnings power when volumes recover. This is the playbook that has worked for decades, and it is being executed again. We just don't get to see the benefit until the freight environment improves.

Cash returns reinforce the point. In the first half of 2025, operating cash flow reached $622.4 million. That left ample room for reinvestment and $425 million in share buybacks -- part of a total $543 million returned to shareholders (about $118 million was paid out in dividends).

Management also plans about $450 million in capital spending this year, split roughly between real estate and equipment. These investments deepen Old Dominion's moat for the next cycle.

Risks remain. If freight demand stays weak or gets even worse, the valuation multiple could remain pressured or even slip further. Investors need some confidence that a recovery is on the horizon.

But Old Dominion stands out from the competition by playing offense during downturns, while weaker peers retrench. That approach has helped it take market share and compound value for decades -- and it is why the stock can be a bargain even when the headline valuation says otherwise.

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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Old Dominion Freight Line. The Motley Fool recommends the following options: long January 2026 $195 calls on Old Dominion Freight Line and short January 2026 $200 calls on Old Dominion Freight Line. The Motley Fool has a disclosure policy.