Growing Twice as Fast as Tesla, XPeng is a Buy

Key Points

• Michael Burry and Ray Dalio think Chinese stocks could be about to come back.
• XPeng is beating its U.S. and Chinese competitors to deliver aggressive results in the coming months.
• Analysts and institutions like the dip and see a much higher ceiling ahead for this name.

You can't deny the two most significant trends today in technology stocks like Nvidia Corp. NASDAQ: NVDA and electric vehicle stocks like Tesla Inc. NASDAQ: TSLA. However, the trend hasn't reached all stocks in the space equally.

Only a few investors, including Michael Burry and Ray Dalio, have been brave enough to venture into Chinese equities. 

As it has grown its earnings per share (EPS) twice as fast as Tesla while trading at a massive discount, consider putting XPeng Inc. NYSE: XPEV on your watchlist.

Can the Chinese Consumer Come Back?

Most have termed Chinese stocks "uninvestable," while others still have high hopes for an economic comeback. An undeniable trend in the Chinese economy will create a potential slingshot for stock prices in the coming months.

The CSI 300 (China’s S&P 500) recently fell to five-year lows, making the dividend yield on that index soar to 5.5%. At the same time, Chinese 10-year bonds only pay a 2.5% yield, which is the most significant difference since 2005, and the closing of this gap brought a massive stock rally.

Chinese inflation rates recently came hotter than expected, further building a bullish case for increased consumer activity. XPeng is now in the eye of the storm to see an aggressive sales expansion.

XPeng Takes the Spotlight

Analysts believe XPeng could grow its EPS by as much as 57% in the next 12 months, above the 13% projected for the entire automotive industry. Of course, this comes head and shoulders above Tesla’s 40% projection for this year.

Since XPeng has yet to make a net profit, basing your investment thesis on EPS growth can be tricky. 

Here's a better way: Lean on sales growth and price-to-sales (P/S) ratios. Analysts think XPeng sales will go from $4.4 billion to $7.9 billion, an 80% jump.

At the same time, Tesla analysts believe that sales will go from $109.4 billion to $132 billion, a much smaller advance of 20%. 

XPeng stock trades for a 2.5x P/S, which is a discount of 58% to Tesla's 6x ratio. 

Wall Street Likes the Dip

Because it trades at only 42% of its 52-week high price, XPeng stock makes for an attractive dip. 

Its competitor, Nio Inc. NYSE: NIO, trades at a much worse 34% of its 52-week high, and it underperformed XPeng stock by as much as 14% over the past month. Price action favors XPeng as the wave of Chinese consumption should hit the market shortly.

XPeng’s dip has become so apparent that some on Wall Street couldn't resist it. Analysts at Bank of America Inc. NYSE: BAC boosted their stock price for XPeng up to $22 a share; the stock would need to rally by 123% to prove them right.

Tying it all up with a bow comes Northern Trust Co. NASDAQ: NTRS; this group bought as much as $25,000 as of February 2024, a 2.2% addition to their position in the stock.

XPeng is set to release its quarterly earnings this week, riding on the back of a pivoting Chinese economy. The odds could be in your favor for a rally on an earnings beat.