With a daily gain of 15.08% and a 3-month gain of 8.04%, XPO (XPO, Financial) has been a notable performer in the stock market. The company's Earnings Per Share (EPS) stands at 0.73. Despite these impressive figures, the question remains: is XPO significantly overvalued? This article will delve into an in-depth analysis of XPO's valuation, providing valuable insights for potential investors.
A Closer Look at XPO Inc (XPO, Financial)
Following the spinoff of its contract logistics division (GXO) in 2021 and freight brokerage operations (RXO) in 2022, XPO is moving closer to becoming a pure-play asset-based less-than-truckload carrier. We estimate that LTL shipping now makes up 60% of total revenue, with XPO's European truckload and LTL operations making up 40%. However, XPO's LTL segment EBITDA mix is much higher than 60%. The firm intends to divest its European trucking division in the year ahead.
With a stock price of $77.48 and a GF Value of $36.13, XPO appears to be significantly overvalued. This discrepancy paves the way for an in-depth exploration of the company's intrinsic value.
Decoding the GF Value
The GF Value is a proprietary measure that estimates the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus, XPO stock appears to be significantly overvalued. The long-term return of its stock is likely to be much lower than its future business growth due to this overvaluation.
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XPO's Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent loss of capital. Therefore, it's crucial to review the financial strength of a company before deciding to buy its stock. XPO's cash-to-debt ratio is 0.09, which is worse than 85.06% of 944 companies in the Transportation industry. GuruFocus ranks XPO's overall financial strength at 4 out of 10, indicating poor financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. XPO has been profitable 7 over the past 10 years, with a revenue of $4.80 billion and an Earnings Per Share (EPS) of $0.73 over the past twelve months. However, its operating margin is 6.53%, ranking worse than 56.29% of 954 companies in the Transportation industry. GuruFocus ranks XPO's profitability at 5 out of 10, indicating fair profitability.
Growth is a crucial factor in a company's valuation. XPO's 3-year average revenue growth rate is worse than 85.39% of 917 companies in the Transportation industry. Its 3-year average EBITDA growth rate is -11.5%, which ranks worse than 82.14% of 823 companies in the Transportation industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, the company is creating value for shareholders. Over the past 12 months, XPO's ROIC was 4.97, while its WACC came in at 12.97.
Conclusion
Overall, XPO stock appears to be significantly overvalued. The company's financial condition is poor, and its profitability is fair. Its growth ranks worse than 82.14% of 823 companies in the Transportation industry. For more information about XPO stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
