Knight-Swift Transportation has gotten torched over the last six months - since October 2024, its stock price has dropped 26.6% to $39.20 per share. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.

Is now the time to buy Knight-Swift Transportation, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why you should be careful with KNX and a stock we'd rather own.

Why Do We Think Knight-Swift Transportation Will Underperform?

Covering 1.6 billion loaded miles in 2023 alone, Knight-Swift Transportation (NYSE:KNX) offers less-than-truckload and full truckload delivery services.

1. Revenue Growth Flatlining

We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Knight-Swift Transportation’s recent performance shows its demand has slowed as its revenue was flat over the last two years. We also note many other Ground Transportation businesses have faced declining sales because of cyclical headwinds. While Knight-Swift Transportation’s growth wasn’t the best, it did do better than its peers.

2. 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, Knight-Swift Transportation’s margin dropped by 8.2 percentage points over the last five years. Continued declines could signal it is in the middle of an investment cycle. Knight-Swift Transportation’s free cash flow margin for the trailing 12 months was 3.2%.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Knight-Swift Transportation’s ROIC has unfortunately decreased. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

We see the value of companies helping their customers, but in the case of Knight-Swift Transportation, we’re out. After the recent drawdown, the stock trades at 19.8× forward price-to-earnings (or $39.20 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now. Let us point you toward the most dominant software business in the world.

Stocks We Like More Than Knight-Swift Transportation

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