Market forces rained on the parade of XPeng Inc. (NYSE:XPEV) shareholders today, when the analysts downgraded their forecasts for next year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business. Surprisingly the share price has been buoyant, rising 48% to US$10.81 in the past 7 days. With such a sharp increase, it seems brokers may have seen something that is not yet being priced in by the wider market.
After this downgrade, XPeng's 32 analysts are now forecasting revenues of CN¥55b in 2023. This would be a sizeable 89% improvement in sales compared to the last 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 22% to CN¥6.60. Yet before this consensus update, the analysts had been forecasting revenues of CN¥62b and losses of CN¥6.00 per share in 2023. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to next year's revenue estimates, while at the same time increasing their loss per share forecasts.
Our analysis indicates that XPEV is potentially undervalued!
The consensus price target fell 21% to CN¥132, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on XPeng, with the most bullish analyst valuing it at CN¥40.24 and the most bearish at CN¥3.22 per share. This is a very narrow spread of estimates, implying either that XPeng is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that XPeng's revenue growth is expected to slow, with the forecast 66% annualised growth rate until the end of 2023 being well below the historical 152% growth over the last year. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 22% per year. So it's pretty clear that, while XPeng's revenue growth is expected to slow, it's still expected to grow faster than the industry itself.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses next year, suggesting all may not be well at XPeng. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for XPeng going out to 2024, and you can see them free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
What are the risks and opportunities for XPeng?
Trading at 56.2% below our estimate of its fair value
Revenue is forecast to grow 29.31% per year
Highly volatile share price over the past 3 months
Currently unprofitable and not forecast to become profitable over the next 3 years
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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.