Shares of ZTO Express ZTO have not had a good time on the bourses of late, declining in double-digits over the past six months. The disappointing price performance resulted in ZTO underperforming its industry in the said time frame. Additionally, ZTO’s price performance was unfavorable to that of other industry players like C.H. Robinson Worldwide (CHRW) and Expeditors International of Washington, Inc. (EXPD) over the past six-month period.

Six-Month Price Comparison

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Given the significant pullback in ZTO’s shares currently, investors might be tempted to snap up the stock. But is this the right time to buy ZTO? Let’s find out.

ZTO’s Bearish Parcel Volume Guidance for 2024

ZTO Express updates its 2024 parcel volume guidance in the range of 33.7 billion-33.9 billion. The updated guidance represents an increase of 11.6-12.3% year over year.

Previously, ZTO expected 2024 parcel volumes in the range of 34.73-35.64 billion. The guidance represents an increase of 15%-18% year over year.

Rising Expenses Weigh on ZTO Stock

The domestic express delivery market is highly competitive due to the presence of big players like SF Express and STO Express. If competition intensifies, the company’s stock price may decrease.

Higher selling, general and administrative (SG&A) expenses are pushing operating expenses and hurting the bottom line. In 2023, SG&A expenses increased 25.6% year over year. During the third quarter of 2024, SG&A expenses increased 17.5% year over year.

Given the headwinds surrounding the stock, earnings estimates have been southbound, as shown below.

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Factors Working in Favor of ZTO Stock

ZTO’s top line is benefiting from strength across all its segments.Revenues from the core express delivery business improved 18.1% year over year in third-quarter 2024, owing to 15.9% growth in parcel volume and a 1.8% increase in unit price. KA revenues, including delivery fees from direct sales organizations established to serve core express KA customers, increased 122.1% as the proportion of higher-valued parcels, such as returned parcels from e-commerce platforms, continued to increase.

Revenues from freight forwarding services grew 0.8% year over year in third-quarter 2024.

Revenues from sales of accessories, largely consisting of sales of thermal paper used for digital waybills' printing, rose 27.6% year over year. Other revenues were mainly derived from financing services.

Additionally, ZTO’s gross profit improved 23.2% from the year-ago reported quarter on the back of revenue growth and cost productivity gain. Gross margin rate improved to 31.2% from 29.8% in the year-ago period.

Impressive Valuation Picture for ZTO Stock

From a valuation perspective, ZTO is trading at a discount compared to the industry, going by its forward 12-month price-to-sales ratio. The reading is also below its median over the last five years. The company has a Value Score of A.

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To Conclude

It is understood that ZTO stock is attractively valued, and an increase in parcel volume is contributing to ZTO’s top line. However, given the headwinds mentioned in the write-up, we do not advise buying this Zacks Rank #3 (Hold) stock at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Instead, investors should monitor the company’s developments closely for a more appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The stock’s Zacks Rank supports our thesis.

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C.H. Robinson Worldwide, Inc. (CHRW) : Free Stock Analysis Report

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ZTO Express (Cayman) Inc. (ZTO) : Free Stock Analysis Report

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