Market Participants Recognise XPeng Inc.'s (NYSE:XPEV) Revenues Pushing Shares 34% Higher

XPeng Inc. (NYSE:XPEV) shareholders have had their patience rewarded with a 34% share price jump in the last month. The annual gain comes to 105% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given around half the companies in the United States' Auto industry have price-to-sales ratios (or "P/S") below 1x, you may consider XPeng as a stock to avoid entirely with its 3.2x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for XPeng

What Does XPeng's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, XPeng has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on XPeng.

What Are Revenue Growth Metrics Telling Us About The High P/S?

The only time you'd be truly comfortable seeing a P/S as steep as XPeng's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 66% gain to the company's top line. Pleasingly, revenue has also lifted 107% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 32% per year over the next three years. That's shaping up to be materially higher than the 17% per annum growth forecast for the broader industry.

With this in mind, it's not hard to understand why XPeng's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From XPeng's P/S?

The strong share price surge has lead to XPeng's P/S soaring as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look into XPeng shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for XPeng with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on XPeng, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.