It's not unusual for companies to hit rough patches and shed large portions of their stock price. However, many investors prematurely write such companies off for dead, or sell their shares at the worst possible time. Even worse, many investors who had once believed in a company often overlook that same company later when it rebounds, thinking that by the time they recognize the recovery, they've missed their opportunity to get back in. Here are two rebounding stocks that you can buy into now, and that should still have better days ahead.
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Back on track
If you haven't used TrueCar Inc. (NASDAQ: TRUE) yet, you've probably at least seen its commercials. TrueCar is an internet-based communication services company that delivers valuable vehicle information to consumers, and helps match them with dealerships selling the vehicles they want when they're ready to buy. In theory, everybody wins: Consumers get reliable information about cars, and a location to quickly purchase the vehicles they desire; dealerships pay TrueCar for efficient leads that cost less than typical lead generation or advertising options.
Image source: Getty Images.
However, TrueCar is essentially a middleman, and that can be a tough business model to properly balance. That became clear when its relationship with its dealership network hit a rough patch. At one point, America's largest dealership group,AutoNation, canceled its partnership with TrueCar. Ultimately, as you can see below, the company hit rough times in 2015 and its bottom line evaporated.
Data source: TrueCar Q4 2016 earnings presentation. Chart by: Author.
After Scott Painter resigned as CEO in late 2015, Chip Perry took over and immediately understood TrueCar had to find a better balance: "When you run a digital marketplace company, the largest one in the industry, you learn a lot," Perry said in a November 2015 interview with Automotive News. "You learn that you need to build the business in a very balanced way that benefits the dealer and the consumer. You can't tilt the market place [sic] too dramatically in either direction."
Perry immediately went to work on better marketing TrueCar's dealerships and improving the effectiveness of its website. He also improved the transparency of the business operation with its dealerships. For instance, if a consumer logs on to the TrueCar website six months prior to showing up at a dealership and purchasing a vehicle, should the dealership be obligated to pay TrueCar for that lead? These were the types of issues TrueCar needed to solve. And it has -- just look at the rebound in adjusted-EBITDA in recent quarters in the graph above.
Many investors wrote TrueCar off for dead, then overlooked the stock during its turnaround. However, revenue growth has returned, adjusted EBITDA has soared to record highs, and its user traffic continues to increase. TrueCar is back on track, and if management continues to execute, its rebound will continue to send the stock higher.
XPO Logistics Inc. (NYSE: XPO) has been an intriguing stock to watch over the past several years as it gobbled up a multitude of smaller businesses to expand quickly. Itswell-executed acquisition strategy turned it from the 12th-largest logistics company in 2015 (per Transport Topics' rankings) to the second-largest in 2016, then lifted it into the No. 1 spot in the 2017 listing, based on 2016 net revenue.
XPO Logistics generates about 37% of its revenue from high-value-added services such as supply chain optimization, warehousing and distribution, and omnichannel and e-commerce fulfillment. The rest of its revenue comes from providing an array of transportation options, such as intermodal and drayage, less-than-truckload, and last mile, among others. Essentially, companies pay XPO Logistics to move their products, or to help them move products better. For context, according to XPO's February 2017 investor presentation, it helps 63% of Fortune 100 companies move goods and products in one way or another.
Now, the company has to switch gears and create cost synergies among its acquisitions, which should bear significant fruit over the next few years. In addition, all of those purchases give XPO opportunities to cross-sell its value-added services. If XPO is helping a large company transport goods, why can't it help that same customer optimize its supply chain? It can, and it increasingly will provide multiple services for much of its customer base.
Currently, despite its rapid growth, many investors are overlooking the company, perhaps waiting for the dust to settle from all those acquisitions. After all, there's some risk that they won't be integrated as smoothly as XPO -- and its investors -- would like. Some potential investors may also be shunning the stock due to the debt load it took on to make those acquisitions. But that could be a mistake: 89% of XPO's debt doesn't mature until after 2021,and the company is within its target of three to four times net debt over adjusted EBITDA. Looking ahead, it has time to pay down debt, create cost synergies, and cross-sell its consumers on more of its services. So now might be the right time to jump on XPO's ongoing rebound.
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