In the last decade, Tesla (NASDAQ: TSLA) has been synonymous with electric vehicles. However, in the last few years the EV space has been heating up and attracted multiple competitors.
China is the largest EV market in the world and the Asian heavyweight is accelerating the move towards clean energy at a stellar pace. This has allowed several companies to enter the fast-growing electric vehicle sector.
Currently there are several China-based EV companies that include NIO (NYSE: NIO), Li Auto (NASDAQ: LI) and XPeng (NYSE: XPEV). Here, we take a look at if XPeng is a good stock to buy and hold right now.
XPeng went public in August
Shares of XPeng went public on the NYSE at an IPO price of $15. It gained close to 50% in the first two trading days and is currently trading at $48.7, indicating a market cap of $35.8 billion.
In November, XPeng reported its first quarter as a publicly listed company and said vehicle deliveries rose 266% year-over-year and 166% on a sequential basis to 8,578. Deliveries for its P7 sedan had begun in June this year and the company delivered 325 vehicles in Q2. This figure surged to 6,210 in Q3.
Comparatively, Q3 sales were up 342% year-over-year at $293.1 million and in Q4, the company has forecast revenue growth at 244% expecting to deliver 10,000 vehicles.
In November, XPeng delivered 4,224 vehicles which was a growth of 342% year-over-year and higher from the 3,040 vehicles it delivered in October.
In order to fund its strong growth, XPeng will raise $2 billion via a follow-on public stock offering. On Monday, the company confirmed that based on its closing price of $49.34 it will issue 40 million shares and derive $1.94 billion from these proceeds.
XPeng further said 30% of the proceeds will be used for research and development and 30% for sales and marketing expenses. Its working capital requirement and strategic investments will account for the rest.
Is XPeng stock overvalued?
Shares of XPeng touched a record high of $74.5 in November and have since lost 35% in market value. UBS analyst Paul Gong downgraded XPeng stock and said while he remains bullish on the long-term prospects of the company, the shares are massively overvalued.
In a research note Gong explained, “But after an over-200% rally, we believe investors more or less already recognize this. Despite raising our volume forecasts on an increasingly positive long-term view (and reducing loss-per-share estimates), we view its potential upside/downside as largely balanced.”
While Gong downgraded XPeng from “Buy” to “Neutral”, the analyst raised its 12-month price target from $25 to $59.
XPeng is currently trading at a forward price to sales multiple of 41.7x and is forecast to increase sales by a stellar 158% in 2021. Its loss per share is also forecast to improve from $0.9 in 2020 to $0.44 in 2021.
We can see the stock is trading at a sky-high valuation. But it is also able to grow revenue at a significant pace and is part of a rapidly expanding market. The Chinese government will continue to support EV manufacturers by providing subsidies which will boost demand in the upcoming decade, making it a top stock to buy and hold right now.
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