RXO, Inc. (RXO): A Bear Case Theory

We came across a bearish thesis on RXO, Inc. on DF Research’s Substack by Keith Dalrymple. In this article, we will summarize the bears’ thesis on RXO. RXO, Inc.'s share was trading at $16.05 as of February 9th. RXO’s trailing and forward P/E were 715.33 and 322.58 respectively according to Yahoo Finance.

RXO, Inc. engages in truck brokerage business in the United States, Canada, Mexico, Asia, and Europe. RXO is facing a severe liquidity and operational crisis following a disappointing fourth quarter, with evidence suggesting the company may already be out of cash or extremely close to it.

The regulatory shake-up in the trucking industry during 4Q25 caused spot rates to surge, driving up the cost of purchased transportation faster than RXO could raise customer pricing. This dynamic heavily squeezed gross margins, particularly for RXO’s asset-light model, which relies on brokerage services and fixed-rate contracts, leaving it more exposed than peers.

The author's analysis estimates gross margins declined 130–225 basis points sequentially to 14.4–15.3%, translating into EBITDA of $4–18 million, well below management guidance of $20–30 million. Negative free cash flow in the quarter, estimated at around $25 million, has likely reduced cash balances to zero, forcing reliance on borrowing or factoring and highlighting a looming solvency risk.

The company’s dependence on its revolver to fund operations intensifies the liquidity concerns, with limited room to maneuver. RXO’s structural issues extend beyond cash flow; as a digital broker, it has no pricing power, faces inherent capital losses, and has a history of failed peer models.

Compounding these challenges, emerging accounting concerns—including the sudden retirement of the young Chief Accounting Officer and external reports questioning accounting practices—suggest investors should scrutinize the quality of the financials closely.

Despite a recent 60% stock rally, largely driven by group buying in the trucking sector, RXO’s fundamentals remain weak, its business model is unsustainable, and the company appears dangerously close to bankruptcy. The combination of margin pressure, cash depletion, and accounting opacity underscores the material risks that continue to plague RXO post-spin-off.

Previously, we covered a bullish thesis on Old Dominion Freight Line, Inc. (ODFL) by Richard Toad in October 2024, highlighting its strong LTL position, high barriers to entry, premium pricing, and cost advantages. ODFL’s stock price has been flat since our coverage due to mixed financial results and an uncertain macroeconomy. Keith Dalrymple offers a contrarian view on RXO, focusing on its liquidity crisis, margin pressure, and accounting concerns.

RXO, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 25 hedge fund portfolios held RXO at the end of the third quarter which was 31 in the previous quarter. While we acknowledge the risk and potential of RXO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than RXO and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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Disclosure: None.