Everywhere you look, growth investors are hyperventilating over artificial intelligence (AI) and satellite/space stocks. I’ve got my eye on something much closer to home.
Its revenues are set to go from $6.8bn in 2025 to over $18bn in the next 12 months. That’s an increase of more than 164% – and I think it’s just getting started…
What’s the stock?
The stock in question is QXO (NYSE:QXO) and the company plans to dominate the highly fragmented $800bn building products distribution industry.
The aim is to reach $50bn in annual revenues via relentless acquisitions. That’s why sales have surged recently and it’s the plan for continued growth.
QXO is already up and running with some key acquisitions. They include the following:
| Acquisition | Transaction Value | Area |
|---|---|---|
| Beacon Building Products | $11 Billion | Roofing & Waterproofing |
| Kodiak Building Partners | $2.25 Billion | Lumber & Materials |
| TopBuild | $17 Billion | Insulation Distribution |
Realistically, buying other businesses is the only way to grow at that kind of pace in this industry. It is however, inherently risky.
It inevitably involves debt and returns are never guaranteed. But QXO has a huge advantage that makes its growth story much more plausible.
Meet Brad Jacobs
The biggest reason to back QXO’s growth strategy is its CEO. Brad Jacobs has executed exactly this strategy before with spectacular results. Jacobs previously turned United Rentals and XPO Logistics into billion-dollar empires. And this matters for a couple of reasons.
One is the unique skills and experiences Jacobs brings. But having him on board also gives the firm the ability to raise capital on much more attractive terms. That’s a huge advantage for doing deals – in fact, I think it’s crucial.
But that means QXO – like SpaceX – depends heavily on its leader.
Key man risk
If – for whatever reason – Jacobs leaves the company, things look much less promising. That could happen for any number of reasons and investors can’t do much about it.
The question is whether the potential reward is worth the risk. I think it is. Ultimately, I prefer having an outstanding leader who could leave over an average one that’s easy to replace. And I think that’s what I’ve got here.
That’s not to say the risk doesn’t matter – it does. But with Jacobs in charge, I think the sky’s the limit for QXO – but not in a SpaceX-type way.
Short-term challenges
QXO shares are down for a few reasons. The biggest is that persistent inflation means interest rates are unlikely to fall this year. And that’s bad for housing demand.
There is however, a big bright side. Lower valuations create more attractive acquisition opportunities. The underlying business however, is progressing well. The process of integrating its new subsidiaries is going well and I expect this to continue.
I think the cyclical downturn has pushed QXO shares into much more attractive territory. And my core long-term thesis is still very much intact.
An opportunity?
While the stock market seems obsessed with unproven space and AI companies, I think QXO offers a realistic alternative. The demand for building projects is much clearer from my perspective.
Jacobs has a proven track record for building quality businesses in fragmented industries. And I’m betting he can do it again, which is why I’m continuing to buy the stock.
Should you invest £5,000 in QXO right now?
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Stephen Wright owns shares in QXO.
