I am optimistic about XPeng (NYSE: XPEV) because it has strong growth potential and significant upside potential compared to its agreed price target from Wall Street analysts.
On top of that, its business value-to-income ratio is quite low given the company’s growth potential, and Wall Street analysts are unanimously bullish on the stock. Last but not least, the Chinese government supports the company, giving it a competitive advantage.
XPeng is a smart electric vehicle company based in Guangzhou, China. It integrates AI and driver assistance technologies into its electric vehicles and is responsible for the design, development, manufacturing and marketing of all of its electric vehicles.
More than 3,500 employees are dedicated to the research and development aspect of the business, making XPeng one of the largest companies in the country, if not the world. In March 2021, the company announced the launch of its vehicles powered by lithium iron phosphate batteries and in April, it signed an agreement to launch a new base in Wuhan, China.
XPeng has continued to develop its activity with innovative creations and efficient marketing of its electric vehicles.
With its new base in Wuhan, the company is expected to increase production to meet the growing demand for smart electric vehicles. As it is focused on middle class consumers in China, its market size is significantly larger than other electric vehicle manufacturers.
Forty-three percent of the company’s employees are dedicated to research and development, which is a critical part of the intelligent electric vehicle industry. In addition, he also signed a contract with five Chinese banks for credit facilities.
XPEV recorded a 616.1% year-over-year increase in the first quarter of fiscal 2021, with revenue reaching RMB 2,950.9 million. The company also completed deliveries of more than 13,000 vehicles this quarter, with gross margin of 11.2%.
The net loss for the quarter was RMB 786.6 million, which is significantly more than the first quarter of the previous year. The net loss for the first quarter of the previous year totaled 649.8 million RMB, and in the fourth quarter, it reached 787.4 million RMB.
Total revenue forecast for the second quarter of 2021 is expected to experience a year-over-year increase of between 475.5% and 492.4%.
The XPEV share is difficult to value at the moment because it is not profitable. That said, it is trading at a reasonable business value-to-income ratio of 7.1x and is expected to grow its revenue by 82.7% in 2022.
As a result, if XPEV can improve profit margins as it scales and generate substantial profitability, shareholders should see huge returns.
The Taking of Wall Street
According to Wall Street analysts, XPEV is getting strong buy analyst consensus based on five unanimous buy ratings in the past three months.
The Xpeng’s average price target of $ 62.96 places the upside potential at 24.6%.
Summary and conclusions
XPeng has huge upside potential given its low enterprise value-to-revenue ratio and large discount from the consensus price target. Given its strong position in the high-growth and world-leading electric vehicle sector, with backing from the Chinese government and unanimous bullish sentiment from Wall Street analysts, the outlook is bright.
On the other hand, investors should keep in mind that the company is far from profitable and faces stiff competition from deep-pocketed competitors in the Chinese electric vehicle space.
Disclosure: At the time of publication, Samuel Smith does not have a position in any of the titles mentioned in this article.
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