XPeng Inc. (NYSE:XPEV) Looks Just Right With A 28% Price Jump

XPeng Inc. (NYSE:XPEV) shareholders have had their patience rewarded with a 28% share price jump in the last month. The last month tops off a massive increase of 204% in the last year.

After such a large jump in price, when almost half of the companies in the United States' Auto industry have price-to-sales ratios (or "P/S") below 1.4x, you may consider XPeng as a stock probably not worth researching with its 2.7x P/S ratio. However, the P/S might be 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

How Has XPeng Performed Recently?

Recent times have been pleasing for XPeng as its revenue has risen in spite of the industry's average revenue going into reverse. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. 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.

How Is XPeng's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like XPeng's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 66% last year. The strong recent performance means it was also able to grow revenue by 107% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 31% per year as estimated by the analysts watching the company. With the industry only predicted to deliver 17% per year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why XPeng's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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

XPeng's P/S is on the rise since its shares have risen strongly. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look into XPeng shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for XPeng with six simple checks.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.