RXO, Inc.: Assessing the Risks Behind the High Valuation and Accounting Concerns

In the high-stakes world of freight brokerage, RXO, Inc. has long been a name that commands attention. Yet, as S&P Global reports, the company's enterprise value has climbed to $779 million as of November 2025, raising the question: Is this valuation justified, or is it a precarious bet on a business facing mounting operational and governance challenges? The answer, for a bear case, lies in the interplay of declining margins, accounting opacity, and legal scrutiny that could unravel investor confidence.

A Valuation Built on Thin Earnings

RXO's forward EV/EBITDA ratio of 20.5, calculated using an enterprise value of $2.7 billion and forecasted EBITDA of $132 million, appears steep for a company whose adjusted EBITDA margins have contracted to 2.7% in Q2 2025. This metric, while a common benchmark in capital-light industries, loses its luster when earnings themselves are under pressure. For context, RXO's Q3 2025 adjusted EBITDA of $32 million fell short of guidance of $33–$43 million, and the company now expects Q4 2025 EBITDA to range between $20 million and $30 million-a 33% decline from its Q2 performance. Such volatility raises questions about the durability of its earnings and the reliability of forward-looking metrics used to justify its valuation.

Operational Headwinds and Margin Compression

The freight brokerage sector is inherently cyclical, but RXO's struggles are not merely a function of market conditions. The company reported an 11% year-over-year decline in full-truckload volume in Q3 2025, a critical segment for its Brokerage division, which already operates on a 14.4% gross margin. Meanwhile, the Complementary Services segment, though healthier at 22.8% gross margin, has not offset the broader trend of margin compression. With the company anticipating "continued market tightness" in Q4, the risk of further margin erosion-and by extension, EBITDA contraction-remains acute.

Accounting Opacity and Legal Scrutiny

RXO's financial reporting has also drawn skepticism. While the company reported an adjusted net income of $2 million in Q3 2025, its GAAP net loss stood at $14 million-a stark discrepancy that highlights the aggressive use of non-GAAP adjustments. Such practices, while not uncommon in the sector, invite scrutiny when paired with the company's ongoing legal troubles. Investigations into alleged federal securities law breaches have cast a shadow over its corporate governance, raising concerns about transparency and the potential for regulatory penalties. These issues could deter institutional investors and exacerbate share price volatility.

Cost-Cutting and Technology: A Sufficient Response?

RXO has responded to these challenges with cost initiatives projected to save over $30 million and technology investments aimed at improving operational efficiency. However, these measures are largely reactive. The company's Q3 results already reflect a 11% volume decline and a GAAP net loss, suggesting that cost savings may not offset the broader headwinds. Moreover, the effectiveness of technology in a fragmented, labor-intensive industry like freight brokerage remains unproven at scale.

Conclusion: A Bear Case in the Making

For investors, RXO's current valuation appears to assume a rapid resolution of its operational and governance issues. Yet, the data tells a different story. A forward EV/EBITDA of 20.5 is unsustainable if EBITDA continues to contract, and the legal and accounting risks further amplify the potential for downside. While RXO's 6% market share as the third-largest North American freight broker is a testament to its scale, it is not a shield against the forces of margin compression and regulatory scrutiny. In a bear case, the company's valuation could face a painful correction, particularly if its cost initiatives fail to materialize or its legal troubles escalate.