If EPS Growth Is Important To You, Covenant Logistics Group (NASDAQ:CVLG) Presents An Opportunity

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Covenant Logistics Group (NASDAQ:CVLG). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

View our latest analysis for Covenant Logistics Group

Covenant Logistics Group's Earnings Per Share Are Growing

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. To the delight of shareholders, Covenant Logistics Group has achieved impressive annual EPS growth of 41%, compound, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Our analysis has highlighted that Covenant Logistics Group's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. The music to the ears of Covenant Logistics Group shareholders is that EBIT margins have grown from 4.3% to 7.4% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

earnings-and-revenue-history

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Covenant Logistics Group.

Are Covenant Logistics Group Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So we're pleased to report that Covenant Logistics Group insiders own a meaningful share of the business. In fact, they own 42% of the shares, making insiders a very influential shareholder group. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. To give you an idea, the value of insiders' holdings in the business are valued at US$192m at the current share price. So there's plenty there to keep them focused!

Does Covenant Logistics Group Deserve A Spot On Your Watchlist?

Covenant Logistics Group's earnings have taken off in quite an impressive fashion. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So based on this quick analysis, we do think it's worth considering Covenant Logistics Group for a spot on your watchlist. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Covenant Logistics Group (1 can't be ignored) you should be aware of.

Although Covenant Logistics Group certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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