Chronicle Journal: Finance

XPeng Stock: After Beating Vehicle Delivery Projections, Is the Stock a Buy?

XPeng (XPEV) remains one of the top bets over the next decade for investors in China's high-growth EV market, given the company's consistent outperformance and focus on expansion.

Electric vehicle (EV) stocks were some of the best-performing companies in 2020. Shares of American EV giant Tesla (TSLA) were up over 700% last year and Chinese EV behemoth NIO (NIO) gained over 1,100%.

Smaller EV companies also have performed impressively.  China-based XPeng (XPEV), which listed on the NYSE in August 2020, gained 75% in 2020.

China is the largest EV market in the world, which suggests XPeng and its Chinese peers have the potential to grow topline at a stellar pace in the upcoming decade.  

XPeng sales were up 342% in Q3

In the September quarter, XPeng increased sales by 342% year-over-year to $293.1 million as the company’s vehicle deliveries were up 266% year-over-year and 166% on a sequential basis at 8,578. While XPeng delivered 325 P7 sedans in Q2, it delivered 6,210 vehicles in Q3.

In the December quarter, XPeng had forecast revenue to grow by 244% while delivering 10,000 vehicles. It managed to outperform its guidance and delivered 12,964 vehicles in Q4 which was an increase of 303% year-over-year.

In 2020, the company’s total deliveries rose by 112% to 27,041. It attributed record quarterly sales to rising brand awareness, as well as expansion in sales, marketing, and supercharging service initiatives all across China.

Focus on expansion

Last month, XPeng sold 55.2 million ADRs (American Depository Receipts) at a price of $45 per share to raise $2.45 billion. It has taken advantage of investor interest that is fast gaining traction in a red-hot space.

XPeng said about 30% of the capital raised will be used for research and development while 30% will be used to fuel sales and marketing expenses. The rest will be used for strategic initiatives as well as to finance working capital requirements.

Yesterday, the company launched a new EV sedan model that looks smaller than the P7 model. In November, XPeng’s CEO said the company is all set to launch an EV equipped with a lidar sensor that uses an invisible laser beam as part of a driver-assist system. This technology will provide drivers with a 3D version of the surroundings.

Does this mean, XPeng will integrate the lidar sensors with its new sedan model?

XPeng valuation and target price

XPeng has multiple secular tailwinds that will allow the company to grow earnings and revenue at a robust pace over the long-term. The shift towards EVs will be the biggest driver of top-line growth for XPeng and its peers.

Electric Vehicles are forecast to account for 20% of total auto sales in China by 2025, up from just 5% in 2020. Further, this number will move to 50% by 2035. We can see why investors are bullish on companies in this high-growth sector.

XPeng stock is valued at a market cap of $32 billion which means it has a forward price to 2021 sales ratio of 14.8x which is not too expensive as Wall Street expects the company to grow sales by 152% year-over-year to $2.16 billion in 2021. Though currently unprofitable, XPeng’s loss per share is forecast to narrow from $0.85 in 2020 to $0.39 in 2021.

XPeng stock is trading about 40% below its record high of $74.49. Of the 8 analysts offering 1-year price targets for XPEV, the average price target is $46.35.  Currently the stock is trading at this level, so though I believe this company is set for strong growth in the next decade, it may be wise to wait for pull backs in the stock to initiate or add to your position.

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XPEV shares were trading at $46.03 per share on Friday morning, up $1.04 (+2.31%). Year-to-date, XPEV has gained 7.47%, versus a 1.58% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditya Raghunath

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.


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