XPeng Inc. (NYSE:XPEV) Looks Just Right With A 32% Price Jump

The XPeng Inc. (NYSE:XPEV) share price has done very well over the last month, posting an excellent gain of 32%. The last 30 days bring the annual gain to a very sharp 84%.

After such a large jump in price, you could be forgiven for thinking XPeng is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.8x, considering almost half the companies in the United States' Auto industry have P/S ratios below 0.9x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for XPeng

How XPeng Has Been Performing

Recent times have been advantageous for XPeng as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For XPeng?

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

If we review the last year of revenue growth, the company posted a terrific increase of 66%. Pleasingly, revenue has also lifted 147% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 31% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 16% per annum, which is noticeably less attractive.

In light of this, it's understandable that XPeng's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does XPeng's P/S Mean For Investors?

XPeng shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of XPeng's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. 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. You can assess many of the main risks through our free balance sheet analysis for XPeng with six simple checks.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.