XPEL - XPEL Inc.: Down But Not Out

2025-04-25 00:40:08 ET

Summary

• XPEL Inc. has experienced rapid revenue growth but faces challenges like slowing revenue growth, increased costs, and uncertainties in the Chinese market due to tariffs.
• Despite headwinds, XPEL remains fundamentally sound with strong brand loyalty, high profit margins, and minimal debt, making it a potential value investment.
• Valuation assumptions include 12% revenue growth, 11-12% operating margins, and a 15% discount rate, suggesting the stock is currently fairly valued.
• Risks include reliance on Tesla customers, potential competition in the PPF market, and execution risks in international expansion, justifying a Hold rating.

The Set Up

XPEL Inc. (XPEL) is a company that has experienced rapid growth throughout the 2020s, growing revenue from $159M in 2020 to $420M in 2024 while maintaining operating margins in the mid-double digit range (14-17%). Their stock price has declined ~45% over the past year as the company has had a few unfavorable earnings reports that have revealed weaknesses in the business (slowing revenue growth and increasing costs). XPEL derives ~9% of their revenue from China, which has experienced a significant decline over the past year of 44% as of Q4'2024 . The emergence of Trump's tariff threats have further added to this uncertainty....

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