Shares of XPO Logistics (XPO 2.90%) climbed 26.7% in April, according to data provided by S&P Global Market Intelligence, on growing optimism that after a miserable six-month period, the worst is finally over for the transportation company. XPO does indeed appear to be on the mend, but investors need to be mindful there is no quick fix for what ails the company.
Over the past decade, XPO has used mergers and acquisitions to transform a trucking brokerage with $177 million in sales into a $17 billion shipping behemoth, producing a 3,000% return on the shares during a 10-year period ending mid-2018. Those gains came to a halt last October, however, first due to criticism from a short-seller and then compounded by XPO missing on fourth-quarter earnings after its largest customer took its business in-house.
That large customer is believed to be Amazon.com, and the rift between the two companies gave rise to doubt about XPO's role in facilitating e-commerce. All in, XPO shares lost about half their value between Oct. 1, 2018, and the beginning of April.
With such a dramatic decline, it is only natural for bargain hunters to take a hard look at whether the stock was oversold. XPO, despite its issues, remains a profitable and growing company, with a bright future facilitating e-commerce for the thousands of retailers trying to compete with Amazon. The price drop also could make XPO a takeover target, Jefferies analyst David Kerstens wrote in a late-March research note.
The overall market sentiment toward XPO is gradually shifting from fear to greed, causing the shares to climb over the month of April.
XPO shares took a turn south in the beginning of May, falling nearly 10% on May 2 after the company reported first-quarter results that were down year over year, missing analyst revenue expectations.
The stock has regained much of what it lost in the days since. XPO did succeed in plugging some of the revenue hole that was created by Amazon's departure but laid clear the challenge it has in front of it and the time it will take to reach its destination.
XPO shares are likely to continue to be volatile. This is a good company, but there is no quick and easy path back into the fast lane.