Revenue ton miles is the most critical key performance indicator for railroads. Revenue is generated when the system moves tonnage. Railroads experience strong gross margins and rarely take financial losses. Determining growth rates and setting discount rates is easier in this industry than in others. Thus, value is driven more by the income statement than the balance sheet.
Railroad stocks are solid and steady investments. There is limited downside risk and adequate historical data to illustrate buy and sell points for an investor.
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These six are behemoths when it comes to transportation. All have revenues greater than $2.5 Billion per year and hold at least $4 Billion in fixed assets. The key to this investment is the asset allocation model.
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The transportation sector of the United States economy is composed of nine industrial groups. One particular group moves more volume of tonnage based on ton miles than any other form of transportation – Railroads. In accordance with the Federal Department of Transportation, railroads move 39.5% of all freight in the US (based on ton miles which is the length freight travels).
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