Is It Time To Revisit XP (XP) After Recent Share Price Pullback?

• If you are wondering whether XP at US$19.03 still offers value or if the easy gains are behind it, the key is to look closely at what the current price actually implies.
• The stock has had mixed recent moves, with a 5.5% decline over the last 7 days and a 4.2% decline over the last 30 days, set against a 17.6% return year to date and 25.9% over the past year.
• These swings sit on top of a longer record that includes an 81.2% return over 3 years and a 44.7% decline over 5 years. This history can influence how investors think about both upside and risk. This backdrop often feeds into changing expectations about what XP should be worth today, even when there is no single headline driving the move.
• In that context, XP currently holds a valuation score of 6 out of 6. The rest of this article will unpack what different valuation approaches are saying, while also pointing to one method at the end that can help you see the bigger picture more clearly.

XP delivered 25.9% returns over the last year. See how this stacks up to the rest of the Capital Markets industry.

Approach 1: XP Excess Returns Analysis

The Excess Returns model looks at how much profit XP is expected to generate over and above the return that shareholders require, then ties that back to today’s share price.

For XP, the starting point is an estimated Book Value of $45.39 per share and a Stable EPS of $13.65 per share, based on weighted future Return on Equity estimates from 10 analysts. The average Return on Equity is 24.73%, while the Cost of Equity is estimated at $6.81 per share. That leaves an Excess Return of $6.85 per share, which is what this model treats as the value created beyond the basic required return.

The model also assumes a Stable Book Value of $55.20 per share, using weighted future Book Value estimates from 5 analysts. Combining these inputs, the Excess Returns approach produces an intrinsic value of about $25.37 per share for XP, compared with the current price of $19.03. This points to the stock trading at roughly a 25.0% discount.

Result: UNDERVALUED

Our Excess Returns analysis suggests XP is undervalued by 25.0%. Track this in your watchlist or portfolio, or discover 49 more high quality undervalued stocks.

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

Approach 2: XP Price vs Earnings

For profitable companies like XP, the P/E ratio is often a useful yardstick because it links what you pay today directly to the earnings the business is already generating. It gives you a quick sense of how many dollars investors are willing to pay for each dollar of current earnings.

What counts as a “normal” P/E depends on how the market views growth potential and risk. Higher expected growth or lower perceived risk typically support a higher P/E, while slower expected growth or higher risk usually point to a lower one.

XP currently trades on a P/E of 9.90x. That sits below the Capital Markets industry average P/E of about 25.82x and also below the peer group average of 17.48x. Simply Wall St’s proprietary “Fair Ratio” for XP is 16.78x, which reflects factors such as XP’s earnings profile, industry, profit margins, market capitalization and risk characteristics.

The Fair Ratio is designed to be more tailored than a simple comparison with peers or the broad industry, because it adjusts for company specific traits rather than assuming all firms deserve the same multiple.

Comparing XP’s current P/E of 9.90x with the Fair Ratio of 16.78x suggests the shares trade below this customized benchmark.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your XP Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives are a way for you to write a clear story about XP that connects your view on its business, your assumptions for future revenue, earnings and margins, and the fair value you think is reasonable. You can then compare that fair value with today’s price to decide whether XP looks attractive or not, all within Simply Wall St’s Community page where Narratives are used by millions of investors and update automatically when fresh information like news or earnings arrives. This helps explain why one investor might back a higher fair value around US$27.10 based on stronger long term assumptions, while another might focus on a lower figure closer to US$16.73 that reflects more cautious expectations, with both perspectives living side by side so you can see exactly what would need to be true for each of those XP stories to make sense.

Do you think there's more to the story for XP? Head over to our Community to see what others are saying!

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.

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