XPeng, Inc. (NYSE:XPEV) has more than doubled since its late August IPO. XPEV stock gained more than 5% yesterday, extending its run from its debut close of $21 a share. However, the shares look fairly valued here, though the company’s growth curve could move the stock a bit higher next year.
XPeng, based in Guangzhou, China, designs and makes smart electric vehicles (EVs) and autonomous driving software systems. Its IPO raised about $1.5 billion before expenses for the company to use to accelerate its EV manufacturing.
How XPEV Stock Compares With NIO
The company last week posted better-than-expected financial results for Q3. It had a loss of just 16 cents per share on an adjusted basis. This was on $293 million in sales of EVs in China.
XPeng delivered 8,578 EVs during the quarter, up 266% over the prior year. That swelled revenue more than fourfold. So far this year, including October, it has delivered 17,117 EVs, up 64%.
By comparison, Nio (NYSE:NIO), another upstart Chinese EV maker, delivered 5,055 EVs during the quarter, and 31,430 year-to-date. Clearly, XPeng is somewhat behind attention-grabbing Nio in terms of where it is on the growth curve.
For example, Nio produced estimated revenue of $589 million in Q3 or twice that of XPeng’s $293 million for the quarter.
Moreover, I wrote about Nio earlier this month, its strong results, and what I believe the stock is worth. I estimated then that NIO stock is worth up to 3x its present price.
Analysts Could be Too Low
XPeng is somewhat behind Nio as seen above. But I also believe that XPEV stock is likely fairly valued at its present price unless sales surprise on the upside.
Using this methodology, XPeng could be worth up to 13-15x estimated sales. Right now XPEV stock has a market capitalization of about $31 billion. Estimated sales by the end of 2021 will be $2.0 billion.
Therefore, XPeng’s stock market value should be between $26 billion to $30 billion. That’s lower than today’s valuation.
However, I highly suspect that the analysts’ consensus estimate of $2 billion in sales for 2021 is likely too low. These projections are likely to rise over the next quarter to at least $2.5 billion to $2.8 billion, i.e., 25% to 40% higher.
This puts the stock’s value at $33 billion to $42 billion. That implies a potential gain in XPEV stock of up to 35% at the high end of the range.
Is Valuation Stretched Here?
Barron’s recently published an article pondering how high XPeng and Nio can go. The article seemed to imply that the valuation at the present does not make much sense if it were to move higher.
The point is that the valuation seems a bit stretched right now. And that is what my analysis shows as well, unless sales turn out to surprise on the upside next year.
TipRanks also reports that seven analysts who have written up the stock believe on average XPEV stock is worth only $30 per share. That is 32% below the present price.
Similarly, Marketbeat reports that five analysts have a consensus price target of $34.23, or 22% below today’s price.
This is not a great situation. Here we have a stock that has moved dramatically higher and sells at high multiples of forecast sales. And all the analysts are saying it’s overvalued.
At this point, it might be wise to wait to see if next year’s sales will turn out to be greater than $2.0 billion. At that point, it will become apparent that the stock is worth more than its present high price.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake runs the Total Yield Value Guide which you can review here.