Recent Stock Move Puts Covenant Logistics Group in Focus

Covenant Logistics Group (CVLG) has attracted renewed attention after a recent share price move, with the stock closing at $45.01 and showing double digit returns over the past month and over the past 3 months.

The recent move to $45.01 sits on top of strong momentum, with a 30 day share price return of 13.69%, a 90 day share price return of 69.34%, and a 1 year total shareholder return of 87.20% pointing to shifting expectations around Covenant Logistics Group’s growth prospects and risk profile.

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With Covenant Logistics Group now trading around $45 and sitting above the current analyst price target, the key question is whether recent strength leaves the stock stretched or if the market is still discounting future growth.

Preferred Price-to-Sales Multiple of 0.9x: Is It Justified?

The current share price of Covenant Logistics Group at $45.01 lines up with a P/S ratio of 0.9x, which screens as slightly expensive relative to its own estimated fair P/S level but still cheaper than many peers in the Transportation sector.

The P/S ratio compares the company’s market value to its revenue, which can be useful for businesses like Covenant Logistics Group where earnings are being affected by one off items and recent margin pressure. At a P/S of 0.9x versus an estimated fair P/S of 0.8x, the market is placing a modest premium on the company’s $1.20b of revenue despite reported net income of $2.27m and a current net margin of 0.2%.

Against that, investors are paying less per dollar of sales than for the broader US Transportation industry, where the average P/S is 1.4x, and less than the 1.1x peer average. The fair P/S level of 0.8x suggests a point that pricing could move toward if sentiment or expectations reset. The current multiple sits in a middle ground, slightly rich versus its own fair ratio, but discounted compared to the wider group.

Result: Price-to-sales of 0.9x (OVERVALUED).

However, Covenant Logistics Group still faces risks, including its very slim 0.2% net margin and its reliance on US$1.20b of revenue from a single country.

Another View on Covenant Logistics Group’s Valuation

The P/S discussion paints Covenant Logistics Group as slightly expensive relative to its own fair ratio but cheaper than many peers. Our DCF model, however, points in the opposite direction, with the stock at $45.01 trading well above an estimated future cash flow value of $5.49 and screening as overvalued. Which lens do you trust more when cash flow and revenue send different signals?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Covenant Logistics Group for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 44 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If the mixed signals around Covenant Logistics Group leave you unsure, use that uncertainty as a prompt to review the figures and risk factors yourself. Before you make any move, it is worth understanding the 4 important warning signs.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.