These stock splits are up 269% over the past five years. Here’s why it’s a buy today.

Motor transporter Old Dominion Freight Line (NASDAQ:ODFL) has quietly put together a remarkable run. Shares of its stock are up more than 13,000% since 2003, on a split-adjusted basis. Stock splits have been a key aspect of Old Dominion’s rise. The company has split its shares five times since 2003. Most recently, the shares were split 2-for-1 in March 2024.

While stock splits are often celebrated because they often occur right after a big rise in a company’s stock price, it’s important to remember that stock splits don’t materially change the fundamentals of a stock investment. Increasing the number of shares reduces the share price in the same proportion and all per share performance indicators of a company are also reduced. A shareholder is no better or worse off after a stock split than just before the transaction. In the case of Old Dominion, the stock split is a bit of a distraction from the company’s fundamentals, which are very strong.

Old Dominion is relatively undervalued

It may seem strange to say that a company is undervalued when its shares have risen by more than 250% in the last five years. However, valuation can be relative, so when evaluating a trucking company for investment, it is useful to compare Old Dominion to its competitors. Although smaller in market cap, Saia, Inc. (NASDAQ: SAIA) is another successful, growing, mid-sized, less-than-truckload shipping solution. Saia has also had an impressive bull run, growing over 600% since March 2020.

Data source: YCharts. Dividends are for the past 12 months.

It should be recognized that Saia has grown revenue faster than Old Dominion over the past year. However, investors should consider not only companies’ revenues and profits, but also the current price level and potential value of a stock before investing; the price at which investors buy shares matters. Although Old Dominion’s price-to-earnings ratio cannot be called low, it is lower than Saia’s, and Old Dominion’s price-to-free cash flow per share is significantly lower. This fact shows that every dollar invested in Old Dominion produces more free cash flow compared to Saia. With a lower price-to-earnings ratio and free cash flow per share, Old Dominion is the better valued company at current share prices because investors benefit from a much larger cash flow return; they can hold shares for the long term, waiting for the stock market to reward Old Dominion shares over time.

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The Positive Scenario for Old Dominion

Old Dominion has an enviable balance sheet, with minimal debt. The company pays dividends, having increased its payment in late 2023, although it’s worth noting that the dividend currently yields just 0.53%, even after the increase. However, the dividend is easy to support, with a dividend coverage ratio of 6.6. The dividend coverage ratio shows that for every dollar paid in dividends, Old Dominion earns over six dollars in net income; in other words, the company can easily afford this dividend. Another way to look at it is that Old Dominion currently pays out just 15% of its net income. The excellent coverage ratio and conservative payout ratio, combined with the company’s strong free cash flow, leave plenty of room for potential future dividend increases.

In addition to the dividends, which competitor Saia does not pay out, Old Dominion also regularly buys back shares. This improves earnings per share and operating figures, which in turn can make shares more attractive to own.

Old Dominion is a good choice for investors looking for opportunities to capitalize on the movement to shorten supply chains by producing more goods in America. Even in a post-COVID-19 world, supply chain disruptions are still fresh on companies’ minds, and Old Dominion is a proven partner for manufacturers shipping products across the country.

Old Dominion is a way to bet on continued economic growth

Unusually for an industrial company, you could view Old Dominion as a contrarian play in the current environment. Over the past 18 months, it has been widely expected that the U.S. economy would slow, perhaps even enter a recession. Despite the negative outlook, shares of Old Dominion have held up relatively well, down 3% over the past year, even as the Federal Reserve has kept interest rates higher for longer than most analysts had predicted. This period of relatively underperformance is an opportunity to buy shares of a profitable, cash-generating company in a vital sector at a discount. With the Federal Reserve expected to act quickly to support the economy at the first sign of a slowdown, owning shares of Old Dominion can give you positive exposure to economic resilience.

Buying stocks at these levels, despite the multi-year run-up, can be seen as a bet on continued strength in the U.S. economy. Old Dominion’s current balance sheet strength, cash flow, and potential for dividend increases make the stock a bargain for those investors bullish on the U.S. economy.

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Joseph Arroyo has no position in any of the stocks mentioned. The Motley Fool holds 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.

These stock splits are up 269% over the past five years. Here’s why it’s a buy today. was originally published by The Motley Fool