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Echo Global Had A Great Year, But The Stock Is Too Expensive

Mar. 06, 2021 9:41 AM ETEcho Global Logistics, Inc. (ECHO)2 Comments
Patrick Doyle profile picture
Patrick Doyle


  • I think Echo Global Logistics had a spectacular year, the fourth quarter in particular. Earnings grew nicely, and the capital structure is much less risky.
  • That said, we don't buy companies. We buy stocks, and the returns we make on those stocks is a function of the price we pay. Shares aren't cheap right now.
  • I recommended selling puts in my previous article. I offer a (very self congratulatory) review of how those have gone.

It’s been a few months since I wrote a neutral piece about Echo Global Logistics Inc. (NASDAQ:ECHO), and in that time, the shares have risen about 5.6% against a gain of 2.5% for the S&P 500. The company has published full year results since, so I thought I’d look at the company again. To refresh your memories, dear readers, my earlier view could be summed up onomatopoeically as “meh.” I was turned off by the fact that net income had fallen in 2020 relative to 2019 in spite of an uptick in revenue. That, coupled with the fact that the shares were reasonably priced kept me from buying the stock. That said, I did write puts on the name, as I saw value here, just not at the then market price. I’ll determine whether I want to buy or not by looking at the financial history here, and by looking at the stock as a thing quite distinct from the underlying business. Also, those who know me best know that I love to brag whenever it’s appropriate and often when it’s inappropriate to do so. I offer that as a warning because I’ll be bragging incessantly when I write about the short puts here.

You’re a busy group, dear readers, and so I’ll jump right to the point in case you missed the title of this article, and skipped over the bullet points above. I was very pleasantly surprised by Echo Global’s financial performance in 2020, especially the final quarter. That said, we buy stocks, and there’s a negative relationship between price paid and subsequent returns. The great performance here is hardly a state secret, and the market price reflects that. For that reason, if history is any guide (it frequently is), now would be a relatively bad time to invest. I’d rather buy this stock when the news out of Echo Global was bad, and

This article was written by

Patrick Doyle profile picture
I'm a quant investment newsletter writer who marries fundamental analysis with the latest research in momentum. Over the past few years, I’ve developed a piece of software that helps me track the level of optimism and pessimism embedded in stock price. I seek to challenge the assumptions embedded in price by profitably exploiting the disconnect between what the market thinks and what is a likely outcome. I invest in those companies that have a greater than average chance of giving us all a surprise in the next few months.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Going to let my short puts ride.

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Comments (2)

5ofDiamonds profile picture
My watchlist has grown too long in size to even bother about $ECHO @Patrick Doyle :-)
Patrick Doyle profile picture
Hi and thanks for the comment. I empathize completely.
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