GXO Logistics (GXO -1.16%) is the world’s largest pure contract logistics company.

The company was spun off from XPO in 2021, based on the assumption that each of the companies, as independent entities, could make acquisitions in its own interest and allocate capital in the manner most favorable to it.

GXO has implemented this vision, making three acquisitions in three years and also growing organically. However, a sluggish economy has presented challenges for the company. Due to excess inventory following the pandemic, many of its customers focused on reducing their inventories last year, and the industrial economy was also sluggish.

As a result, GXO shares have traded mostly sideways over the past few years, and following the release of its most recent second-quarter earnings report, the stock was just above a 52-week low. In the turbulent stock market of 2021, it is now 54% below its post-spin high.

Should investors take advantage of the recent sell-off? Let’s take a closer look at where GXO stands after the latest report.

Image source: GXO.

GXO continues to grind

GXO shares fell 5% following the release of its earnings report on Tuesday. Results were mostly in line with estimates, but organic sales growth of 2% was at the low end of the company’s annual guidance, and earnings were hurt by headwinds in the macroeconomic economy.

Reported revenue increased 19% to $2.8 billion for the quarter, primarily due to the acquisition of Wincanton earlier in the second quarter, which strengthened the company’s presence in the UK, including in key verticals such as aerospace and defense, and expanded GXO’s base by more than 200 locations.

Costs associated with the integration of Wincanton weighed on margins, as adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) declined to $187 million from $190 million and adjusted earnings per share declined to $0.55 from $0.70.

In a sign that momentum is building, GXO announced that its backlog rose to a 12-month high of $2.3 billion. The company won new business in the quarter, representing annual revenue of $270 million.

The advantage of GXO

The logistics industry has evolved from traditional picking and packing to a highly automated area and GXO sees this as a key advantage and has invested heavily in technology.

In an interview with Motley Fool, Kristine Kubacki, Chief Strategy Officer of GXO, emphasized the importance of technology, saying:

We don’t have a business conversation with a client that doesn’t involve some sort of automation, and I think we’ve been doing it the longest. I think we do it the best, and I think that’s the real differentiator with our clients.

GXO recently introduced a humanoid robot for its warehouse as part of a pilot program. In collaboration with Apptronik, the company has deployed a humanoid industrial robot that is 1.73 m tall, can carry 25 kg and runs on removable batteries. It can perform tasks such as picking and packing items.

Artificial intelligence is also becoming a differentiator for GXO as the company uses new AI technologies to optimize picking, manage warehouse flow and predict replenishment.

Is GXO a buy?

GXO management told investors on the conference call that inventory trends are beginning to improve after the cycle bottomed out in the fourth quarter of last year and that they expect a more normal holiday season this year. The company should also benefit from easier comparisons in the second half of the year.

Meanwhile, GXO remains focused on its 2027 targets, which call for an organic compound annual revenue growth rate (CAGR) of 8% to 12% from 2021 to 2027, achieving revenue of $17 billion, an Adjusted EBITDA CAGR of 17% to $1.6 billion, and cumulative free cash flow of $2 billion generated during that period.

GXO currently has an enterprise value of $10.6 billion, meaning it trades at approximately six times 2027 EBITDA.

It will take some time for business momentum to regain momentum, but falling interest rates should boost the economy and GXO’s technological edge and global reach should help the company continue to win new customers and expand existing relationships.

For patient investors, the stock seems to be a good buy at current levels, as the valuation appears attractive and organic growth will ultimately accelerate.