Investors have been bidding up shares of FedEx (NYSE:FDX)—the world’s second largest freight and logistics company—for the past few years. Shares have more than doubled since they troughed in 2011, and they now trade near an all-time high. While the company trades at a rather high valuation of 27 times trailing earnings, analysts expect the company’s 2015 earnings to spike to nearly $9/share, which makes the stock appear to be reasonably priced at $143/share. Furthermore the company recently announced that it would be raising its dividend by 33 percent. This is more of a symbolic gesture considering that new dividend is a mere $0.20/quarter, giving investors a yield of slightly more than 0.5 percent at the current stock price.
With investors and management confident in the company’s future, I am a bit concerned. Even if this concern is misplaced, the stock has relatively limited upside, whereas if I am right in my concerns, which I will get to in a moment, the stock has substantial downside risk.