XPEL: On Its Way To $30 Per Share
Summary
- XPEL's 2021 numbers are not priced into the stock.
- There is significant room for multiple expansion when the market realizes what XPEL will likely achieve in 2021.
- Valuation multiples and the stock price could double by the end this year.
- I introduce a new form of content with this article, a YouTube commentary video.
While the market hits new highs (or at least the Nasdaq does), my single largest position remains off its own all-time highs by a few dollars per share. XPEL Inc. (NASDAQ:XPEL) trades at around 30 times my 2020 EPS estimate. My forecast has XPEL growing revenue 12% this year, with EPS coming in up slightly from 2019. A stock price of around 30 times this year's earnings seems reasonable enough, perhaps even high for a company growing revenue low double digits this year. But this year's earnings are, at this point, not important. What matters here are my 2021 forecasts, and why XPEL is set to see earnings explode in 2021, along with its stock price.
A Muted 2020 Could Lead To A Huge 2021
In the following video, I go over what has occurred over the last couple of years that now sets XPEL up for a big year in 2021. This includes my forecasts for the rest of 2020 and all of 2021.
As I explain in the video, XPEL saw a substantial decline in revenue in China in Q1 2020 due to COVID-19, but still managed to grow revenue nearly 15% overall, as the impact from the virus was fairly isolated to China in the first quarter. The second quarter of 2020 will likely see a more spread-out impact in western regions. I have forecasted a 10% decline in revenue for Q2 2020 from Q2 2019. Keep in mind though, China is expected to recover in Q2 as management suggested in the Q1 conference call that China's revenue was on pace to double from 2019 in the second quarter.
Source: Table created by author, XPEL Q1 2020 data from XPEL Filings
My 2020 Q3 and Q4 estimates bring growth to around 20%. This would be on the historically low end for the company. Then, we get to 2021's numbers. I forecasted 50% and 60% growth in Q1 and Q2 of 2021. While this may seem like an aggressive forecast, I believe it to be a quite reasonable one. Given the fact that Q1 of 2019 had an inventory build leading to lower growth and 2020 had the impact of COVID-19, as long as Q1 2021 is "normal", the company should put up very impressive growth as the previous two Q1 numbers were depressed substantially. Keep in mind also that my Q1 revenue forecast in 2021 is only slightly above what the company actually achieved in Q4 2019. The story is similar in Q2 2021 with my 60% growth forecast (note that this 60% growth rate is off my -10% forecasted decline in Q2 2020, and thus once again, I believe XPEL will make up ground there and see a high revenue growth rate). Finally, I forecasted for 20% growth in Q3 and Q4 of 2021. I recommend watching the video above for how I arrived at my margin and EPS estimates.
Bringing it all together produces the following annual forecasts:
Source: Table created by author, XPEL Q1 2020 data from XPEL Filings
I have included 2017, 2018, and 2019 actual results for comparison purposes. I expect XPEL to earn around $0.94 in EPS in 2021.
A Discussion On Valuation
XPEL trades at around 31 times my 2020 EPS estimate (note that my EPS number is down a bit from my previous article on XPEL as operating and profit margins were a bit less than I expected in Q1), but that's only around 17 times my 2021 EPS estimate. I believe XPEL will price in next year's earnings sometime in the back half of 2020, once the market realizes what could happen here and begins to price in 2021 numbers rather than 2020 numbers. XPEL could very well trade for 25 to 30 times 2021 EPS, meaning shares could reasonably get as high as $30, nearly a double from where shares sit today.
Key Risks
While the risks of investing in XPEL are well worth taking for me, they may not be for you. These are the main risks I foresee for the company and my thesis in the back half of 2020:
- A second wave of COVID-19 leading to repeated shutdowns and impacting my forecasted revenue growth rates in the second half of 2020.
- Competitors catching up.
- Another "black swan" market event like COVID-19 that severely impacts business.
Conclusion
As I've explained in other articles, XPEL is a fantastic company. I believe the company is far from reaching its potential and still has a long way to go. 2021 is already setting up to be a great year for the company as long as no black swan events occur. It remains my single largest position, and I remain very bullish on the company and the stock.
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This article was written by
Analyst’s Disclosure: I am/we are long XPEL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
I own XPEL shares and calls. It is my single largest position and makes up a majority of my net worth.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (19)
How are they able to grow so fast in Europe? Who are they taking market share from? Are there alternatives to XPEL for high end cars?
Also, high level, how are they able to enter new countries and grow business so quickly? I imagine they likely have to hire sales people who go around to dealerships selling their product, no?
Hoping xebec has equal growth!
