What happened

XPO Logistics (NYSE:XPO) shares lost more than half of their value between mid-February and mid-March on fears the COVID-19 pandemic would cause a sustained recession and that the transport and logistics company was ill-prepared to deal with it.

Those fears in the months that have followed have receded, and as they have, the stock has staged a bit of a rally. Shares of XPO gained 18.1% in May, according to data provided by S&P Global Market Intelligence, getting back toward breakeven for the year.

So what

The pandemic has hit shipping hard, slowing global economies, cutting supply chains, and sapping demand for logistics and transport services. The entire sector took a hit as China went into a lockdown early in the year, and the pressure increased as the pandemic spread globally.

XPO was hit harder than most due to the company's $8 billion in total debt. The company prior to the pandemic was exploring the sale of large pieces of the business with the idea of paying down some of that debt, but called off the divestiture plan in late March due to market conditions.

Two XPO semi-trucks at a distribution center.

Image source: XPO Logistics.

XPO's early May quarterly earnings release helped to put investors at ease. The company missed consensus estimates for earnings and revenue but generated strong free cash flow in what is typically a light quarter and boasted $2.5 billion worth of liquidity and what CEO Brad Jacobs called "an ironclad business model."

The company has a lot of flexibility when it comes to capital expenditures, since much of what it had planned to spend in 2020 was designed to support growth initiatives. XPO also has no significant debt maturities before June 2022.

XPO and other shippers kept rising as the month went on, fueled by improving optimism the pandemic would be resolved and cities would soon begin to reopen.

Now what

XPO shares might be back to breakeven for the year, but the stock arguably still has room to run. The company today trades at an enterprise value 7.8 times EBITDA, well below a sampling of other transport companies.

XPO EV to EBITDA Chart

Transport EV to EBITDA data by YCharts.

If anything, I believe XPO, with its investment in tech and growing relationship with top customers, over time can trade at a premium to most shippers. The company needs time to pay down its debt and prove those investments are worth it, but I wouldn't hesitate to buy in even after a strong May.