Covenant Logistics Group (NYSE:CVLG) Is Doing The Right Things To Multiply Its Share Price

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Covenant Logistics Group (NYSE:CVLG) and its trend of ROCE, we really liked what we saw.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Covenant Logistics Group, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.081 = US$66m ÷ (US$998m - US$181m) (Based on the trailing twelve months to March 2025).

Thus, Covenant Logistics Group has an ROCE of 8.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.4%.

Check out our latest analysis for Covenant Logistics Group

In the above chart we have measured Covenant Logistics Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Covenant Logistics Group .

So How Is Covenant Logistics Group's ROCE Trending?

Covenant Logistics Group's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 17,080% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

As discussed above, Covenant Logistics Group appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Covenant Logistics Group can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Covenant Logistics Group that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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.