We came across a bullish thesis on XP Inc. (NASDAQ:XP) on Safe Harbor Stocks’ Substack by Kristopher Rymer. In this article, we will summarize the bulls’ thesis on XP. XP Inc. (NASDAQ:XP)’s share was trading at $11.40 as of Jan 6th. XP’s trailing and forward P/E were 8.84 and 7.33 respectively according to Yahoo Finance.
A digital platform displaying a range of financial products and services.
XP is a leading technology-driven platform in Brazil, offering low-fee financial products and services aimed at disintermediating traditional financial institutions. The company focuses on educating new investor segments, democratizing access to financial services, and developing innovative products and technologies to empower its clients. Operating similarly to Charles Schwab in Brazil, XP provides financial advisory services and a broad product platform, with over 800 investment products available across various asset classes. Since its capital investment in 2012 from General Atlantic and Dynamo, followed by a major investment from Itau Unibanco in 2017, XP has grown rapidly, eventually launching a highly successful IPO in 2019.
Currently valued at a $6.9 billion market cap, XP has demonstrated impressive growth, with client assets increasing at a 24.3% CAGR since its IPO, and 51.3% CAGR since its 2012 investment. The company has successfully expanded into a full financial services ecosystem for both retail and institutional clients. XP operates in four key business lines: retail investments, retail financial services, institutional services, and corporate & issuer services. Its retail segment holds a dominant market share in Brazil’s financial exchanges, while its credit and debit card offerings and growing insurance distribution network further bolster its position. However, despite strong growth, XP has encountered signs of saturation, with the number of active clients and growth in its credit portfolio leveling off. This raises concerns about future growth, particularly as the Brazilian market becomes increasingly saturated.
Although XP continues to cross-sell products to its existing customers, reducing reliance on new client acquisition, there are growing indications that the pace of growth may moderate. Despite this, the company’s financial profile remains robust, with net income margins of 26%, a 12.6% EPS CAGR over the last two years, and a steadily improving SG&A margin. With an 8.4x NTM P/E ratio, XP offers an attractive valuation given its projected earnings growth. However, the risks associated with currency fluctuations and potential market saturation in Brazil pose challenges. Additionally, XP’s dual-class voting structure, which concentrates control among insiders, could be a concern for some investors.
Despite these risks, XP’s strong position in the Brazilian market and potential for expansion make it an appealing investment. Yet, given the moderating growth and currency risks, the company warrants continued monitoring before committing to an investment.
XP Inc. (NASDAQ:XP) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 25 hedge fund portfolios held XP at the end of the third quarter which was 22 in the previous quarter. While we acknowledge the risk and potential of XP 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 XP 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.