3 Reasons to Sell CVLG and 1 Stock to Buy Instead

July 03, 2025 at 00:03 AM EDT

CVLG Cover Image

Over the past six months, Covenant Logistics’s shares (currently trading at $25.62) have posted a disappointing 9.1% loss, well below the S&P 500’s 4.8% gain. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.

Is now the time to buy Covenant Logistics, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Do We Think Covenant Logistics Will Underperform?

Even though the stock has become cheaper, we're swiping left on Covenant Logistics for now. Here are three reasons why there are better opportunities than CVLG and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Covenant Logistics grew its sales at a tepid 5% compounded annual growth rate. This fell short of our benchmark for the industrials sector. Covenant Logistics Quarterly Revenue

2. EPS Took a Dip Over the Last Two Years

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

Sadly for Covenant Logistics, its EPS declined by more than its revenue over the last two years, dropping 17%. This tells us the company struggled to adjust to shrinking demand.

Covenant Logistics Trailing 12-Month EPS (Non-GAAP)

3. Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Covenant Logistics’s margin dropped by 25 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity. Covenant Logistics’s free cash flow margin for the trailing 12 months was 3.4%.

Covenant Logistics Trailing 12-Month Free Cash Flow Margin

Final Judgment

We cheer for all companies making their customers lives easier, but in the case of Covenant Logistics, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 7.2× forward EV-to-EBITDA (or $25.62 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are superior stocks to buy right now. Let us point you toward one of Charlie Munger’s all-time favorite businesses.

Stocks We Would Buy Instead of Covenant Logistics

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.