Knight-Swift Transportation’s 39% return over the past six months has outpaced the S&P 500 by 31.8%, and its stock price has climbed to $61.47 per share. This performance may have investors wondering how to approach the situation.

Is there a buying opportunity in Knight-Swift Transportation, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Despite the momentum, we're cautious about Knight-Swift Transportation. Here are three reasons you should be careful with KNX and a stock we'd rather own.

Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Knight-Swift Transportation’s recent performance shows its demand has slowed as its annualized revenue growth of 2.3% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs.

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Knight-Swift Transportation, its EPS declined by 14.4% annually over the last five years while its revenue grew by 9.8%. This tells us the company became less profitable on a per-share basis as it expanded.

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. Unfortunately, Knight-Swift Transportation’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

We see the value of companies helping their customers, but in the case of Knight-Swift Transportation, we’re out. With its shares outperforming the market lately, the stock trades at 30.6× forward P/E (or $61.47 per share). This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now. We’d suggest looking at one of our top software and edge computing picks.

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