Thinking about what to do with XPeng stock? You are not alone. Whether you have been riding the EV boom or just watching from the sidelines, XPeng’s stock price moves are hard to ignore. After a big 82.0% year-to-date jump and an impressive 62.9% gain over the past year, the last week saw an -8.9% pullback. The past month has been quieter, up just 0.7%, and if we zoom out to three years, XPeng is up a remarkable 150.8%. On a five-year view, however, it is still slightly down by -3.4%.

These swings reflect not only shifting trends in the electric vehicle market but also changing investor confidence in XPeng itself. Recent sector developments, such as a more supportive policy environment in China and heightened competition among EV makers, have clearly had an impact on risk perception. While some investors are recalibrating, others see growth prospects that are now more attractively priced.

But is XPeng undervalued right now? According to our valuation scorecard, it checks the box in 2 out of 6 valuation tests. This is far from a slam dunk, but it is certainly worth a closer look. To help you decide whether XPeng deserves further consideration, let us step through the different valuation approaches. Stay tuned, because at the end of this article, I will share a better way to put all this analysis into context.

XPeng scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

The Discounted Cash Flow (DCF) model is a widely used method that estimates a company's value by projecting its future cash flows and then discounting them back to today's value. This helps determine what the business is worth based on how much cash it can generate in the years ahead.

For XPeng, the analysis is based on the 2 Stage Free Cash Flow to Equity model. Currently, XPeng's last twelve months Free Cash Flow is negative, at CN¥-5,463 million. Analysts anticipate a notable turnaround, with projections showing Free Cash Flow growing strongly over the coming years. By 2027, the forecasted Free Cash Flow reaches CN¥11,295 million, and extrapolated estimates suggest it could climb to CN¥18,700 million by 2035. These figures illustrate substantial growth potential over the next decade, with both analyst forecasts and further projections supporting a positive trajectory.

According to this DCF analysis, the estimated fair value for XPeng stock is $21.32 per share. With its current price reflecting a 1.4% discount to this value, XPeng appears to be trading about in line with its projected worth using this cash flow-based approach.

Result: ABOUT RIGHT

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for XPeng.

Simply Wall St performs a valuation analysis on every stock in the world every day (check out XPeng's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

The Price-to-Sales (PS) ratio is often the preferred valuation tool for companies like XPeng that are growing but not yet generating consistent profits. By measuring how much investors are willing to pay for each dollar of revenue, the PS ratio provides a useful snapshot of expectations for future growth and profitability.

Growth prospects and risk play a big role in determining what counts as a normal or fair PS ratio for any company. Rapidly expanding firms often command higher multiples, since investors are betting today's sales will multiply in the coming years. On the other hand, industry risks or thin profit margins might push that fair multiple lower.

Currently, XPeng trades at a PS ratio of 2.37x. This sits above the auto industry average of 1.32x, but below the average of 3.20x for direct peers. To go a step further, Simply Wall St’s proprietary "Fair Ratio" blends factors like XPeng’s growth outlook, industry dynamics, risk, profit margins, and company size to estimate what’s justifiable in today's market. XPeng’s Fair Ratio comes out to 2.08x, just a hair below its actual PS ratio. This more nuanced perspective can be more meaningful than blanket comparisons to industry averages or peer groups as it reflects the full picture, not just one dimension.

With the Fair Ratio and the actual PS ratio less than 0.10 apart, XPeng appears to be valued about right using this approach.

Result: ABOUT RIGHT

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, a new, intuitive tool that lets investors link their view of a company’s story directly to financial forecasts and, ultimately, to a fair value estimate.

A Narrative is simply your perspective on XPeng’s future, expressed in numbers: what you believe about its future revenue, margins, growth or challenges, and what these mean for its true worth. Narratives connect the dots between qualitative insights (like management strategy, technology, or global expansion), your own assumptions about financials, and a dynamic, trackable fair value. This helps you make decisions grounded in both facts and your unique view of the company.

Narratives are accessible on Simply Wall St’s Community page, trusted by millions of investors, and make it straightforward to adjust your expectations or follow others’ forecasts as new information, such as earnings or breaking news, becomes available. Your Narrative updates automatically.

For example, one investor might build a bullish XPeng Narrative based on aggressive international sales growth, setting a fair value of $33.26. Another could take a cautious stance due to profitability challenges and assign a fair value closer to $18.27. This provides a transparent comparison of views and helps you decide if the current price justifies a buy or sell.

Do you think there's more to the story for XPeng? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include XPEV.

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