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Investors should look for clarity before buying Xpeng stock
By Chris Markoch Jan 14, 2021, 8:00 am EST
Source: Andy Feng / Shutterstock.com
There’s no doubt that the EV sector is red hot. This is creating intense interest in any stock remotely related to EVs. But it’s also creating the possibility that investors could be left holding the bag when the bubble bursts.
However, was the nearly 40% drop in Xpeng stock the result of investors getting out while the getting was good? Was it simple profit taking with uncertainty regarding capital gains taxes in a new administration?
Likely it was a combination of both. But there is another threat.
What Will the U.S.-China Relationship Look Like?
In early January, the New York Stock Exchange delisted three Chinese telecom companies from its stock exchanges citing security risks. And as Ian Bezek wrote, the nature of the EV market may put Chinese EV companies in the line of fire. Bezek wrote:
EV companies could definitely be in the future line of fire. It’s not hard to make a security risk case there as well, particularly as cars become more sophisticated and collect and retain more data about their owners.
But more importantly, China may retaliate against the United States, which could represent the first foreign policy challenge of the nascent Biden administration. And that adds a level of risk to Xpeng stock.
But since Xpeng does not sell their cars in America, is the threat of delisting a real threat?
Could XPEV Stock Be Delisted?
This question has an easy answer. Investors shouldn’t worry.
Let’s say that Xpeng is included in the list of companies that the U.S. delists from the New York Stock Exchange. The punishment is an example of the bark being worse than the bite. The reason is because any company that is threatened with delisting has three years to come into compliance.
For a company that’s serious about holding its listing, three years is ample time to get their house in order.
Is Xpeng a Short- or Long-Term Stock?
Our own Lou Carlozo helps shape the conundrum that investors face with Xpeng stock. Investors have to ask what drove the stock’s near 40% fall from grace? Without profits to look at, that can be tricky. And Xpeng doesn’t sell cars in America so we can’t look for anecdotal (if not always reliable) evidence. However, Xpeng is not like other EV startups that are flirting with investors without having a product in the market.
At the same time, this is a market where love is blind. Like the sports franchise that prizes the potential of draft picks over proven performance, many investors may continue to shower EV startups like Electrameccanica Vehicles (NASDAQ:SOLO) or Lordstown Motors (NASDAQ:RIDE) with their dollars.
Or they may start to compare Xpeng with Nio (NYSE:NIO). If they do, they’ll have to rationalize what to think about Xpeng’s market cap, which at $35.91 billion is almost one-third of Nio’s $101.13 billion. Yet the XPEV stock price is only about 37% lower than Nio. So is Xpeng overpriced, or is Nio undervalued?
The Bottom Line
Decisions, decisions. However, the decision you have to make is whether now is the time to buy into Xpeng stock? If you do, it’s likely you’ll be rewarded in the long run. But when that long run occurs is anybody’s guess. Which means that buying now may be good. Buying the stock in six months may create a better (or worse) entry point.