QXO first take

We’ve talked about it repeatedly. It finally happened. QXO is a thing.

This is the long-awaited building products rollup from Brad Jacobs, architect of such rollups as XPO, United Rentals, and United Waste. The initial stock reaction has been, well, something. Day one of trading:

Day two has been steady, but still inflated.

I’m just going to cut to the chase here: It is very dangerous to buy this stock right now.

There’s a whole lot going on here, and we won’t fully go down the rabbit hole, but the brief summary is QXO went public via a merger between Jacobs Private Equity, Brad’s firm, and a tech consulting firm known as SilverSun. Terms of the deal called for SilverSun holders to get a tiny bit of cash, a share of the new SilverSun to be spun out as an independent, and a fraction of a share of the new QXO.

(Edit: I goofed. SilverSun will not be spun off. They amended the agreement in April to keep the company and its tech in-house.)

At the time of the closing, QXO executed a reverse 8 for 1 stock split. The deal was done with QXO having a new stock base with Jacobs owning about 90%, other investors owning most of the rest, and the SilverSun sliver holding a small piece.

It all makes for chaos among the data providers. Yahoo! Finance as of this typing still lists the company as having a market cap of $143 million (even with the new investors injecting $1 billion). There is very little float thanks to the reverse split, and a lot of excitement about this deal. (At one glance today the bid-ask spread was above 8%. That is not a functioning market.)

I don’t know what fair value is for the stock once all things are sorted out and volume and liquidity returns to the marketplace. I’d be shocked if it is anything near $220 per share. My back of the envelope math trying to figure out the eventual share count indicates the market is currently valuing the business at north of $80 billion. I’m pretty confident that the business is not worth $80 billion.

Yes, I love this opportunity long term. Yes, I’ll admit I am part of the problem here as a Jacobs cheerleader who has spoken enthusiastically about that opportunity. Yes, I wish the company would do more than just file the required SEC documents to try to save people from making what could be a real mistake.

We talk about long-term investing. We talk about patience. My interest in QXO is based on what I think it can be over a decade. With a long-term mindset you don’t have to get in on the ground floor. Maybe I am wrong and this really is fair value. If so, I can always buy at some version of this valuation in a week or two.

It is ok to wait until the markets get their act together. I’m sitting on my hands for now.