Contract logistics provider GXO Logistics' (GXO 1.17%) stock is down 47% over the last three years, 23% over the last year, and 12% in 2025 alone. At this point, many investors would be forgiven for throwing in the towel and concluding that there's something fundamentally wrong with the company. However, I think that would be a massive overreaction, and the recent decline is actually a fine buying opportunity. Here's why.
GXO Logistics' challenging few years
To understand what's gone wrong with GXO Logistics (at least with its stock price), you must return to the pandemic and economic lockdowns. These led to a boom in online shopping, and many companies either announced e-commerce spending plans or introduced new capabilities.
NYSE: GXO
Key Data Points
That's great news for companies offering e-commerce warehousing technology (more on them in a moment) and also super news for GXO Logistics, which manages outsourced supply chains and warehousing. The good news is GXO enjoyed the boom, and its former parent company, XPO, lost no time in spinning the company off in 2021.
However, the lockdowns would not last forever, and the subsequent return to normality led to a natural retraction in e-commerce fulfillment spending, which GXO's organic revenue growth can easily demonstrate.
|
Metric |
2021 |
2022 |
2023 |
2024 |
2025 Est.* |
|---|---|---|---|---|---|
|
Organic revenue growth |
15% |
15.4% |
2% |
3% |
3% to 6% |
Data source: GXO Logistics presentations, *management's guidance
The slowdown in an associated market, e-commerce warehouse automation, is also apparent in Honeywell's warehouse and workflow solutions sales over the same period. It's been a tough market to be in.
Data source: Honeywell presentations, chart by author. YOY = year over year.
What went wrong in 2025?
The disappointing news carried through into this year when in the company's fourth-quarter earnings report management told investors that a few large customers were rationalizing their operations and that GXO would take a hit accordingly. While management did note that "we have been able almost completely to offset this rationalization impact through new wins" in terms of revenue, it will take time for the new business to offset the profitability inherent in the lost work with older, large customers.
It's a disappointing outcome, but it is understandable in the current environment of a sluggish industrial sector, compounded with the natural retraction in spending from the boom years.
Why GXO Logistics stock is a buy now
The company has three major, interconnected profit drivers:
- The cyclical growth in e-commerce warehousing coming from growth investments
- The growth in the adoption of outsourced logistics, as companies focus on their core activity
- The growth in sophistication in technology developments (automation/robotics, artificial intelligence, analytics, and intelligent warehouses), which creates a value-add that GXO can bring to its customers
Clearly, the first profit driver has been negatively impacted by events of the last few years, but the other two drivers remain intact. Indeed, management sees the large customer realignment in the first quarter as a temporary and short-term matter. Moreover, there are are some signs of growth, with CEO Malcolm Wilson telling investors on the recent earnings call that its sales pipeline was up 15% at the end of the fourth quarter and up 20% in the U.S.
Image source: Getty Images.
That's backed up by Honeywell management's view that warehouse automation sales would stabilize in 2025 from the lows of 2024 -- just one of the reasons why investing in Honeywell could set investors up for life. Robbert Willett, the CEO Cognex, of another company with exposure to e-commerce warehousing, recently said, "Market growth has improved as large e-commerce players return to capacity expansion and broader logistics remains an underpenetrated market." These are signs that cyclical growth could return, even if it bounces off a depressed period in 2024.
The other two profit drivers are most likely intact, and there's no shortage of interest in using automation and intelligent technology to optimize operations. The more it is adopted and developed, the more value GXO can add to its solutions.
Image source: Getty Images.
A stock to buy?
It's always a cause for concern when a company reports large customers scaling back investment, and there's always the possibility of more to come. However, these issues look temporary, and just as GXO suffers when its customers cut back, it also grows when they expand geographically.
In addition, Honeywell and Cognex are indicating at least some budding shoots of recovery, and due to the decline, investors are getting an opportunity to buy GXO stock at just 15.2 times the midpoint of management's earnings-per-share guidance of $2.40 to $2.60. That's highly appealing for a stock with plenty of long-term growth potential.
