We came across a bullish thesis on XPEL, Inc. (XPEL) on Value Investing Subreddit Page by Reasonable-Green-464. In this article, we will summarize the bulls’ thesis on XPEL. XPEL, Inc. (XPEL)’s share was trading at $43.36 as of Jan 21st. XPEL’s trailing P/E was 24.78 according to Yahoo Finance.
A fleet of electric vehicles in a cityscape, representing the companies success in urban transportation.
XPEL presents a compelling growth story in the automotive aftermarket sector, supported by a strong brand, product diversification, and strategic international expansion. With increasing consumer adoption of electric vehicles (EVs) and the aging of vehicles on the road, demand for XPEL’s paint protection films, window films, and self-healing coatings is poised to rise. As the U.S. EV market is expected to grow at an annual rate of 10.54% through 2029, XPEL’s products are becoming essential to EV owners who prioritize vehicle preservation. The company’s self-healing films and other protective coatings, which reduce the need for maintenance, are gaining traction, especially for older vehicles and luxury cars, positioning XPEL to benefit from these trends.
XPEL’s product lineup is diverse, with paint protection films, which contribute to 70% of Q3 sales, experiencing steady growth. The company has also capitalized on the success of window films and ceramic coatings, with both segments seeing impressive growth rates of 20.6% and 11.6%, respectively. These non-automotive products, including home and office window films, now account for 30% of total sales, highlighting XPEL’s ability to diversify its revenue streams beyond the automotive sector. This diversification has been a key driver of revenue growth, enabling the company to weather macroeconomic challenges.
International expansion is another key growth area for XPEL. U.S. sales remain the dominant revenue source, accounting for 57.2% of total sales, but international markets have been outperforming, particularly in Canada, where revenue growth reached 25.7%. While China has experienced a decline due to inventory issues with its distributor, this market represents a small portion of total sales, and overall international performance continues to strengthen. These positive trends abroad contribute to XPEL’s record revenue despite challenges in specific regions.
Strategic partnerships, particularly with Tesla, Rivian, and BMW, are enhancing XPEL’s market presence, especially in the rapidly growing EV market. The Tesla partnership is crucial, given the dominance of Tesla in the EV sector, and the collaborations are helping to integrate XPEL’s products into high-profile vehicles and events. Such partnerships not only increase brand visibility but also open new channels for revenue growth. The relationship with Rivian, a key player in the EV space, further strengthens XPEL’s position in the market.
However, XPEL faces some risks. A potential tariff increase on Chinese imports could raise production costs, putting pressure on profit margins and potentially leading to price hikes. This is particularly concerning since XPEL relies heavily on a single distributor in China, and any disruptions in the supply chain could negatively impact the company. Additionally, the Culper Research short report, which raised concerns about XPEL’s reliance on Tesla and its supplier Entrotech’s joint venture with PPG Industries, led to a significant stock drop in October 2023. While XPEL responded by clarifying the limited impact of Tesla on its revenue, these allegations continue to hang over the company’s stock price.
Despite these challenges, XPEL’s long-term growth potential remains compelling. With a strong market position, expanding international presence, and diverse product offerings, the company is well-positioned to continue growing. The current P/E ratio of 23.98, though below its five-year average of 41.6, suggests that the stock may still be undervalued given its strong growth trajectory. While near-term macroeconomic uncertainties require monitoring, particularly regarding China, the company’s strategic partnerships and expansion initiatives are likely to drive sustainable growth in the years ahead. Thus, XPEL remains an attractive investment for long-term growth, with its solid balance sheet and continued market leadership offering promising upside.
XPEL, Inc. (XPEL) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 14 hedge fund portfolios held XPEL at the end of the third quarter which was 13 in the previous quarter. While we acknowledge the risk and potential of XPEL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than XPEL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.