What happened

Give them credit: XPO Logistics (NYSE:XPO), and the analysts who follow it, are doing their level best to make this a December to remember for XPO shareholders.

On Wednesday, the stock sold off hard after the company issued an earnings warning by the roundabout route of making an SEC 8-K filing. Thursday, shares were punished further when short-seller Spruce Point Capital took advantage of the negative sentiment by issuing a short report accusing the company of "financial irregularities" and recommending that investors dump their shares.

And today? XPO Logistics stock is rebounding, up 13% as of 1:15 p.m. EST as the company rebutted Spruce Point's report.

Truck driving into a sunrise

XPO Logistics' future may be brighter than the picture Spruce Point painted yesterday. Image source: Getty Images.

So what

Spruce Point accused XPO of (among other things) carrying too much debt and being incapable of generating free cash flow (FCF) consistently. XPO responded later in the day, calling Spruce Point's report "intentionally misleading, with significant inaccuracies" (such as the ones we pointed out yesterday).

Characterizing Spruce Point's arguments as "an attempt to string together unrelated pieces of incorrect information to paint an inaccurate impression of the company," XPO then proceeded to put its money where its mouth is. It announced this morning that it is authorizing up to $1 billion in share repurchases to demonstrate its conviction that its stock is not as overpriced as Spruce Point contends -- and maybe even a bargain.

Now what

I wouldn't go that far. Spruce Point, while exaggerating the risks at XPO, is still broadly right that FCF at the transportation and logistics company isn't as strong as its $535 million reported net profit implies. The company also carries a heaping helping of debt -- about $3.8 billion net of cash on hand.

Even with that debt, at an enterprise value of $10.3 billion, XPO stock sells for about 19 times earnings. Valued on free cash flow, it's more expensive -- about 36 times FCF. Seeing that most analysts who follow the stock (Spruce Point excepted, obviously) think that XPO is capable of growing earnings at 38% annually over the next five years, though, even 36 times FCF may be a fair price to pay for the shares.

Now, all XPO has to do to prove its critics wrong is actually produce that 38% growth. Once again, the ball's in XPO's court.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends XPO Logistics. The Motley Fool has a disclosure policy.