On Thursday, Goldman Sachs adjusted its stance on XPeng Inc. (NYSE: NYSE:XPEV), downgrading the stock from Buy to Neutral. The firm set a new price target of $12.50, up from the previous $11.70.
The revision follows XPeng's notable performance against its industry peers over the last two months, attributed to the strong reception of its new models, such as the M03 and P7+.
Despite the downgrade, Goldman Sachs forecasts robust growth for XPeng, projecting an 81% year-over-year volume increase. This optimism is tempered by caution due to the competitive landscape expected in 2025, particularly in the first quarter, which traditionally sees aggressive price reductions. Additionally, the current auto trade-in program has spurred higher industry demand in the fourth quarter of 2024.
The firm also pointed out the uncertainty surrounding the continuation and impact of the trade-in subsidy into 2025. With XPeng's shares trading at a valuation consistent with the historical average 12-month forward price-to-sales (P/S) multiple over the past two years, Goldman Sachs views the risk-reward balance as fair.
Following XPeng's third-quarter results in 2024, Goldman Sachs has increased its revenue estimates for 2024 to 2026 by 5%-9%. The firm's non-GAAP net income projections have also been revised, improving from RMB -5.7 billion/-6.0 billion/-4.9 billion to RMB -5.3 billion/-3.3 billion/-474 million. The adjustments reflect a more positive sales volume outlook.
The new 12-month discounted cash flow (DCF) based target price represents a slight increase of 7%, equating to $12.50 for ADR and HK$49 for H share. This new target implies a marginal downside of 1% to 3%, according to the firm's analysis.
InvestingPro Insights
XPeng's financial landscape, as revealed by InvestingPro data, offers additional context to Goldman Sachs' analysis. The company's market capitalization stands at $11.99 billion, reflecting its significant presence in the electric vehicle market. XPeng's revenue growth of 66.09% over the last twelve months as of Q3 2024 aligns with Goldman Sachs' projection of robust growth, supporting the firm's forecast of an 81% year-over-year volume increase.
However, the company's profitability remains a concern, as highlighted by its negative P/E ratio of -15.76 and operating income margin of -18.86%. This aligns with an InvestingPro Tip indicating that XPeng is not expected to be profitable this year, a factor that may have influenced Goldman Sachs' cautious stance.
On a positive note, XPeng's strong recent performance is reflected in its impressive 3-month price total return of 79.04%. This surge supports Goldman Sachs' observation of XPeng's notable performance against industry peers in recent months.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for XPeng, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.