Are Investors Bailing on Travel America as Diesel Shortages Loom?

Key Points

• Travel America stock fell over 20% the day after it delivered a mixed earnings report. 
• The pending diesel fuel shortage presents an opportunity for Travel America; but some risks exist as well. 
• TA stock is oversold by both fundamental and technical measures but may still not be a buy. 

TravelCenters of America (NASDAQ: TA) stood out the day after the company reported earnings. But not in the way investors would like. TA stock fell over 20% after the company delivered a mixed earnings report. The company beat on revenue but came in light on earnings estimates.  

We’ve seen companies fall short of earnings projections. And with TA stock up about 15% in the 30 days prior to earnings, it’s possible this sell-off is investors acknowledging that they were pricing in a beat and got the opposite. 

That’s one explanation. And it may be true. The stock has been charging higher since it scored a healthy beat on earnings in its second-quarter earnings call in August. But it’s also possible that this result is about investors hedging on the news of likely diesel fuel shortages. 

However, based on technical indicators, TA stock is starting to look oversold. In this article, we’ll ask if investors should think about buying Travel America on this dip.  

The Good News About Rising Diesel Fuel Prices 

TravelCenters of America has increased its market share and is now using artificial intelligence to help them buy fuel. This is having the effect of improving the company’s margins, which have been growing. In the earnings report, chief executive officer Jonathan Pertchick said, “Our fuel team continued to navigate ongoing uncertain macroeconomic conditions, delivering not only an ample supply of fuel to the field but also a 24.9% increase in fuel gross margin versus the prior year.” 

The company’s internal estimates also show an increase in the U.S. diesel market share in the past three years. The company says it has gone from underperforming to overperforming.  

The Bad News About Rising Diesel Fuel Prices 

On the conference call after the company’s earnings report, Perthick was asked about the company’s level of concern about diesel fuel shortages. He remarked that if the company were to run out of fuel in some areas it would “be infrequent and short lived and … focused surgically (on) certain key areas or certain specific areas.” He went on to say that the company does not have wide-ranging concerns that would “measurably affect volumes.”  

That may be true. But the simple fact is that supply is one thing; demand is another. As early as February 2022, some small fleet operators were buckling under the weight of higher diesel prices. It’s not a stretch to believe that more will be under pressure as diesel prices rise on diminished supply.  

Demand may also be affected as fleet operators pass along their higher fuel costs. So far the consumer is holding up well. And they may continue to manage through the holiday season. But after that, it’s tough to tell.  

Can the Convenience Store Business Help TA Stock? 

Of course, like Casey’s General Store (NASDAQ:CASY) and Murphy USA (NYSE:MUSA), TravelCenters of America does more than sell gas. It’s a convenience store. And that makes the franchise a popular destination for travelers. At the time of this writing, there’s no consensus about what consumers will do.  

However, since travel and entertainment stocks continue to do well, it’s fair to speculate that there is still pent-up demand for travel. That could be a benefit to Travel America. But the company has much smaller margins on the goods in its convenience stores.  

Is TA Stock a Buy? 

The post-earnings sell-off has pushed the stock below its 50-day simple moving average (SMA). However, the stock price is still comfortably above the 200-day SMA and it is looking technically oversold. Adding to the bullishness is the price-to-earnings ratio which is at 6.3x.  

But does this mean you should buy TA stock? The consensus of analysts surveyed by MarketBeat give the stock a moderate buy rating with a 62.80 price target. That’s a 27% upside from its current price.  

That being said, the latest sell-off has turned the stock negative for the year. And with the Federal Reserve just raising interest rates by another 75 basis points, there may be a further drop to come. That makes TA stock a hold for me until there’s more clarity about the broader economy.