Xpeng (NYSE:XPEV) stock is trading far from its $74.49 peak reached the height of the electric vehicle bubble. Still, chances are high that its original investors bought the stock at below $20.
XPEV stock traded in the $17-$20 for the first three months following its initial public offering. And because the Biden administration is set to push clean energy with $40 billion, speculators are scurrying.
The global EV push will continue driving growth. After Tesla (NASDAQ:TSLA) rose by nine-fold in 2020, investors do not want to miss the next multi-bagger.
Global Delivery Lifts XPEV Stock
On Dec. 16, Xpeng delivered its first EV to Norway. The headline failed to lift the stock at the time. Markets may have “sold on the news.” That is, it already priced in the value of the headline and once it happened, investors sold shares to take a profit.
Xpeng’s careful entry into the European auto market will expand its addressable market. In November, the company delivered 4,224 vehicles, up 342% from the previous year. So, the first 100-unit deliveries of its G3 sports-utility vehicle is not that impressive. Starting at $41,000, the EV should benefit from strong demand.
Still, Xpeng does not want to accelerate monthly shipment rates in the European region yet. Norway is a small market for EVs but is supportive of the clean energy initiative. For example, it has favorable government policies and charging infrastructure.
If Xpeng sells out its G3, the company could increase supply in Norway and continue its expansion in other European countries.
Valuation
At a market capitalization of around $35 billion, Xpeng is worth half as much as General Motors (NYSE:GM). GM stock trades at a forward price-earnings ratio of 7x. In its third quarter, Xpeng posted revenue of $293.1 million. This is more than triple (up 342.5%) from the same period the year earlier. It also lost $127.4 million.
In that same period, GM posted revenue of $35.5 billion. It earned $4 billion in income. Markets are assigning a potentially unsustainable valuation on Xpeng while punishing GM shares. So long as the EV supplier posts triple-digit revenue growth quarterly, the share price should not fall by much.
| XPEV | Industry | S&P 500 | |
| Value Score | 20 | 60 | 73 |
| P/E | – | 100+ | 39.9 |
| P/S | 56.8 | 1 | 2.8 |
Based on the data above, Xpeng’s value score of 20/100 would justify a price target in the $20-$30 range. On average, the Wall Street analyst price target is $44 per Tipranks. Conversely, simplywall.st warned that the company will not report earnings until 2024. Its debt-equity ratio will not change but the equity (shares outstanding) will rise.
Stock Sale
Last month’s upsized 48 million share offering (up from 40 million) will raise $2.2 billion for Xpeng. Like other EV firms including Tesla and Nio (NASDAQ:NIO), the stock dilution hurts shareholders. Understandably, the capital will fund its infrastructure needs. Cautious investors will demand profits coming in sooner. Instead, Xpeng will likely keep selling shares whenever prices soar.
So long as the market has a healthy appetite for EV stocks, XPEV shares will not dip by much. But if the hot speculation in the sector ends and investors dare not gamble, then Xpeng is an unattractive investment.
Your Takeaway
EV investors are better off holding Tesla than Xpeng. Assuming valuations do not matter, Tesla is a widely held EV. The S&P 500 included the company in the index last year, forcing exchange-traded funds and mutual fund indexes to hold Tesla.
Nio is also more attractive. The company established a nation-wide battery-swapping service for Chinese customers. This lowers the cost of its EV and offers the convenience of a full charge without any waiting. Still, Xpeng’s market capitalization is around half that of Nio. The stock has more volatility and upside for EV speculators.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
