Xpeng Stock Down 18% in January – Time to Buy XPEV Stock?

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The price of Xpeng stock is down more than 18% so far this month as Chinese equities keep being pressured by delisting and regulatory concerns while the market continues to be on risk-off mode amid an expected shift in macro conditions.

Back on 31 December, a report from Reuters indicated that the Chinese government was planning to cut its subsidies to electric vehicles by 30% in 2022 while it expects to fully remove them by the end of the year.

The consequences of such a measure for electric vehicle manufacturers with large exposure to this Asian market might be dire as consumers could turn their eyes back to fossil fuel powered alternatives due to their lower price.

However, Xpeng has not yet felt the impact of the progressive reduction of these subsidies – which started back in 2020 – as deliveries in December rose 181% compared to the same period a year ago with the firm handing over 16,000 vehicles to its customers by the end of last month.

Nevertheless, this positive performance did not prevent the stock from falling off a cliff amid the pessimism that seems to be reigning in the market in the past few weeks.

What could be expected from this electric vehicle stock as we are about to end the first month of 2022? In this article, I’ll be assessing the price action and fundamentals of Xpeng stock to outline plausible scenarios for the future.

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Xpeng Stock – Technical Analysis

xpeng stock
Xpeng (XPEV) price chart – 1-day candles with multiple indicators – Source: TradingView

A decline below the 200-day simple moving average yesterday is perhaps the most relevant technical event that has happened lately as it further favors a bearish outlook for the stock.

In the past couple of months, XPEV stock has posted three consecutive lower highs and this has resulted in the formation of a descending triangle formation. Even though this setup is not an aggressively bearish pattern, it does signal significant weakness in the price action.

Yesterday, the stock dropped more than 12% at some point during intraday stock trading activity but recovered to settle only 4.4% lower at $40 per share. Trading volumes exceeded the average by at least 1.5 times and that means that buyers showed up to grab some Xpeng shares despite this wave of negative momentum.

Momentum indicators remain bearish as the Relative Strength Index (RSI) is standing at 39 after posting another lower high. The MACD has drifted to negative territory and below the signal line while being accompanied by steadily increasing negative histogram readings

Moving forward, the $34 level remains the most relevant area of support to watch. For now, the downside risk stands at 15% as everything points to an imminent decline to this area. Depending on what the price does once (and if) it tags this horizontal support, the mid-term outlook may change for Xpeng.

Xpeng Stock – Fundamental Analysis

Xpeng sales have been surging rapidly in the past few years, moving from $1.4 million back in 2018 to $2.4 billion in the past twelve months. However, the company has not managed to scale up to a point where it can produce positive operating profits.

In the past 12 months, GAAP operating losses surged to $800 million or 34% of the firm’s sales. Even though losses persist, this figure is an improvement compared to the negative 72.4% margin reported by the firm by the end of the 2020 fiscal year.

In this regard, everything points to the possibility that Xpeng could break even soon, perhaps once the company reaches the $4 to $5 billion level in sales.

Meanwhile, Xpeng has also reduced its cash burn significantly. Last year, it only burned $100 million while the company reported cash reserves of over $2 billion in the previous quarter.

Overall, the fundamental picture of this electric vehicle maker is progressively improving.

At its current market capitalization of $35.6 billion, the firm is trading at 6 times its forecasted sales for 2022. This ratio is not particularly stretched considering the firm’s strong track record of top-line growth, robust balance sheet, and clear path to profitability.

Moving forward, even though there is still room for further negative volatility, this is not an unattractive level to buy a company with promising prospects in a hot market.

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About Alejandro Arrieche PRO INVESTOR

Alejandro is a freelance financial analyst with 7 years of experience in the industry. He writes technical content about economics, finance, investments, and real estate and have also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing, macro analysis, and technical analysis. Other publications Alejandro has written for include The Modest Wallet, and Capital.com.