By XPeng’s (NYSE:XPEV) standards, not even a mouse was stirring this past week. So, does that suggest either Santa or the Grinch is ready to make an appearance? Let’s see what some of the company’s bulls and bears are saying. A deeper look the price chart for XPEV stock will help us come to a risk-adjusted determination as it relates to both sides.
Electric vehicle stocks have been a particularly volatile but overall bullish market this year. Tesla (NASDAQ:TSLA) leads the pack in terms of sales and market capitalization. However, Nio (NYSE:NIO), Fisker (NYSE:FSR), Li Auto (NASDAQ:LI) and many other electric vehicle stocks are trying or readying to give Tesla a run for its money.
That growing list of contenders also includes recent IPO and China-based XPEV. So, does XPeng have what it takes?
Bullish investors upbeat on XPEV’s prospects certainly maintain some ammunition. For one, the company is already putting the rubber to the road with EV’s being aggressively snapped up by consumers. The thing is, in a hot EV space, where every day it seems there’s a new EV IPO or SPAC being given the green light, many of Xpeng’s public competition are only talking a good game. XPEV is already walking the walk. There’s more too.
InvestorPlace’s Mark Hake — a guy who knows his way around financial statements — is positive on XPEV stock. He recently wrote that shares appear undervalued by 45% to 50% over the next 12 months based on current revenue growth. This should continue exponentially through next year and into 2022.
Coupled with a significant investment from China tech giant Alibaba (NYSE:BABA), XPEV can successfully steal a page from Tesla’s playbook and tap capital markets for future growth investments. It can also navigate short-term cash-flow losses.
Not everyone is bullish on XPeng, however. Speaking of stealing from Tesla, Elon Musk has accused the company of stealing its old source codes. The company also caught the more critical attention of InvestorPlace colleague Chris Lau.
Chris sees a couple other problems with XPeng too.
The company’s supercharging network, while good, is nevertheless a less attractive option than competitor Nio’s extremely popular battery swap. Despite applauding its sales growth and an impressive P7 EV, he’s less keen on Xpeng’s ability to sustain its revenue momentum.
Lastly, competitive threats outside the EV market are a concern. Chris worries an exodus of momentum money from XPEV stock could be unfolding as investors rotate into hotter new offerings like Airbnb (NASDAQ:ABNB). And that could work to drag shares significantly lower.
XPEV Stock Weekly Price Chart
Source: Charts by TradingView
Both XPEV’s bulls and bears have arguments that could reasonably support a long or short position. But I’d caution investors wait for confirmation from the weekly chart. Last week’s church-like quiet resulted in shares forming an inside doji candlestick. The pause follows a corrective challenge of XPEV’s lifetime 50% – 62% retracement zone. It’s important to say the least.
For XPeng’s bulls, all stocks correct. Even Tesla, despite its terrific market-leading gains this year, broke out from a two-month long corrective basing pattern exactly one month ago. Sporting a slightly larger but not entirely unusual correction of 42%, a reaction through last week’s high should find bullish XPEV investors stepping up to buy growth at a more secure technical discount.
Alternatively, a failure to hold pattern support could produce the type of additional weakness Chris Lau warned of. Price momentum in bullish stocks is great, until it’s not and overly hot markets like EVs and stocks such as XPEV can become their own worst enemy. The Dot.com era and more recently cannabis stocks and cryptocurrencies the past couple years are strong lessons of what might be forthcoming.
So, will there be a sighting of Santa or the Grinch this week? It’s highly likely one will make an appearance. And I’d be okay with stock exposure to either outcome as the next leg up or down stands to offer big-time profit opportunities. Either way though, I’d recommend the gift of positioning with an out-of-the-money vertical when the decision to pull the trigger arrives.
On the date of publication, Chris Tyler held, directly or indirectly, positions in Nio (NIO) and its derivatives, but no other securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
