On Friday, B.Riley adjusted its stance on XPEL Inc. (NASDAQ:XPEL) stock, a company specializing in protective films and coatings. The firm downgraded XPEL from Buy to Neutral and slashed the price target to $37 from the previous $74.
This move follows XPEL's first-quarter results, which were released on Thursday, revealing sales, adjusted EBITDA, and earnings per share that fell short of expectations.
XPEL's revenue underperformed due to weaker-than-anticipated sales in the U.S. and China, causing a 0.7% decline in product segment sales. In the U.S., the aftermarket slowdown continued to affect sales, compounded by port delays that hindered transactions of Porsche (ETR:P911_p) and Audi vehicles, both key brands for XPEL.
Meanwhile, in China, revenues missed the company's forecast by $3 million to $4 million, despite a historical high in the previous quarter, as the distributor sold through inventory accumulated in the fourth quarter.
Despite the downturn in U.S. and China markets, XPEL experienced a 30.2% growth in revenues outside these regions, with the Middle East/Africa leading the charge, followed by the Asia-Pacific, Latin America, Canada, the European Union, and the United Kingdom.
However, the U.S. business saw a sluggish start in January and February across various geographies, reflecting broader consumer weakness, especially among non-dealership aftermarket customers.
The company observed a shift in the aftermarket protective film (PPF) market, with a newly emerged cohort of EV enthusiasts showing less interest in PPF compared to traditional car enthusiasts.
This has led XPEL to focus on original equipment manufacturer (OEM) programs, targeting vehicle buyers typically not engaged in the aftermarket. Notably, sales rebounded in April, outpacing March, thanks to the easing of port delays affecting Porsche and Audi deliveries.
Given the current economic headwinds and uncertain factors affecting the aftermarket PPF adoption in the U.S., XPEL has revised its revenue growth guidance for the fiscal year 2024 downward, prompting B.Riley to lower their estimates and price target accordingly.
InvestingPro Insights
In light of the recent downgrade by B.Riley, current real-time data from InvestingPro provides a clearer picture of XPEL Inc.'s financial health and market performance. The company's market capitalization stands at $907.96 million, with a Price/Earnings (P/E) ratio adjusted for the last twelve months as of Q4 2023 at 17.2. This suggests a valuation that may still attract investors looking for growth potential, especially when considering the company's revenue growth of 22.32% during the same period. Moreover, the gross profit margin remains strong at nearly 41%, indicating effective cost management despite the challenging market conditions.
One InvestingPro Tip that stands out is the stock's current position in oversold territory according to the Relative Strength Index (RSI), which could signal a potential rebound opportunity for investors. Additionally, the fact that XPEL's cash flows can sufficiently cover interest payments is a reassuring sign of financial stability. Investors should note that while the stock has experienced significant volatility and a notable decline over the past months, analysts predict the company will be profitable this year, which is substantiated by its profitability over the last twelve months.
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