Studies have shown that the most profitable insider transactions tend to occur in small-cap stocks. This segment of the market is less researched than the large-cap space, which means there’s more potential for explosive share price movements.
In this report, we are going to flag some very bullish insider buying in a US small-cap, Covenant Logistics Group Inc (CVLG:US). Covenant Logistics is a provider of high-service truckload transportation services. Its services include highway services, asset-light warehousing, transportation management, and freight brokerage. The company is listed on the NASDAQ Global Select Market and currently has a market capitalization of $260 million.
Covenant Logistics: insider buying
What’s caught our attention here is a series of insider purchases in late October and early November. Our records show that between 29 October and 2 November, CEO and Chairman David Parker, Co-President and COO John Tweed, and CFO Paul Bunn purchased a total of 136,488 CVLG shares. Combined, these insiders spent around $1.9 million on stock.
Source: 2iQ Research
We view this insider activity as bullish for a few reasons. Firstly, these are top-level insiders that have purchased stock. These individuals are likely to have an information advantage over other investors.
Secondly, these are large purchases. Combined, these purchases represent the largest amount of insider buying within a quarter at Covenant Logistics for several years. Our Insider Model sees this buying activity as very bullish.
Covenant Logistics recently published an encouraging third-quarter trading update. Highlights of the Q3 results included a 43% increase in managed freight revenue and a 13% increase in warehousing revenue. Additionally, the group advised that, as a result of its strategic plan and a bounce back in economic activity, it experienced significant improvements in adjusted cost per mile and capital efficiency. Overall, the third quarter of 2020 was the second best of any third quarter in the past 15 years, only behind the third quarter of 2018. Looking ahead, Covenant said that it expects fourth quarter volumes and pricing to be favorable and to support sequential margin improvement.
In light of these results, we see the insider buying here as bullish. Insiders are clearly confident about the future.