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Why XPO Logistics Stock Tanked 37% in August

By Reuben Gregg Brewer – Updated Sep 3, 2021 at 10:44AM

Key Points

  • A big corporate shake-up was behind the drop in XPO's shares, only it isn't anywhere near as bad as it seems.

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This big decline isn't what it seems. Here's what you need to know to understand what transpired last month.

What happened

Shares of shipping provider XPO Logistics (XPO 2.28%) fell a dramatic 37% in August, according to data from S&P Global Market Intelligence. The interesting thing here is that the drop occurred in basically one fell swoop, which is an indication that there's something unique going on. Basically, there was a corporate action that changed the makeup of the company. Here's a quick look at what you need to know before you decide what to do next.

So what

On July 13, the board of XPO Logistics announced that it had approved the "separation of its logistics segment through the distribution of all of the outstanding shares of common stock of its wholly owned subsidiary," GXO Logistics (GXO 1.21%), "to holders of XPO common stock." Effectively, it was spinning off its logistics arm, with each share of XPO Logistics receiving one share of GXO. 

A tractor trailer on a highway.

Image source: Getty Images.

The move is expected to allow XPO to focus its energies on its less-than-truckload transportation and truck brokerage services. GXO, meanwhile, will be able to put all of its resources behind its contract logistics operations. The hope, of course, being that each will be more successful as stand-alone companies and, just as important, that investors will be able to value the individual parts more accurately. 

The big drop in XPO's stock is simply a reflection of this spinoff, which took place at the start of August. To fully understand that value of the investment, you need to combine the value of XPO and spinoff GXO. All in, this drop wasn't what it seemed.

Now what

With meme stocks trading in incredibly erratic, and often irrational, ways, it's easy to see a stock make a big move and chalk it up to mercurial investors. You really can't do that, as the situation with XPO and GXO proves. More research is often needed to suss out what's going on. Long-term shareholders here, meanwhile, need to make a choice about what they want to own. If trucking is why you bought XPO, then selling GXO might be a good option. If you liked the mix of trucking and logistics, then keeping both makes sense. And selling XPO would be the move if you want to focus on logistics.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends XPO Logistics. The Motley Fool has a disclosure policy.

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Stocks Mentioned

XPO Logistics Stock Quote
XPO Logistics
XPO
$37.67 (2.28%) $0.84
GXO Logistics, Inc. Stock Quote
GXO Logistics, Inc.
GXO
$43.42 (1.21%) $0.52

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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