Investors should get on board with XPeng (NYSE:XPEV) stock if they aren’t already.

Yes, general worries about China’s crackdown across multiple industries continue to stoke concern. However, XPeng rolls on and its strong earnings report justifies bullishness. 

Ultimately, broader concerns will abate. When they do, investors in XPEV shares will have an asset that will rise quickly. Ignore the hazy concerns and focus on XPeng’s current execution and future potential. 

XPeng did in Q2 what it does again and again: it impressed. The market rewarded XPEV stock on the news that it posted an earnings beat.

The company reported a 21 cents-per-share loss on sales of $583 million. These numbers were better than analyst predictions, which included a 22 cents-per-share loss on $552 million in sales.

Shares reached above $42 immediately following the news. They had been trading at $40 just prior.

XPeng also beat analyst expectations based on other metrics as well. One such important metric is gross profit margins which reached 11.9%, besting analysts’ 11.3% projections for the quarter. 

Margins are particularly important to XPeng for a few reasons. Firstly, the company is not yet profitable, so any improvement to margin metrics indicates that it is inching closer to profitability. 

Secondly, XPeng is a vehicle manufacturer. Automotive manufacturing is an industry noted for the high cost to manufacture a vehicle and low margins therefrom. So, it is very good news indeed that XPeng bested expectations by 0.6%. 

Gross margin reached 11.2% a quarter earlier and was -2.7% in Q2 of 2020. Progress is evident. 

But while XPeng is improving according to many metrics, it remains a growth company. That means there are issues to remain aware of. 

Losses Mounting Could Be a Problem

XPeng managed to record $582.548 million in revenues in Q2. Those revenues represent a 27.5% increase over the previous quarter on a Chinese renminbi basis. That’s a clear positive for the company. 

Yet, XPeng also recorded a more than $185 million loss in Q2. That loss was 51.87% higher than in the previous quarter. Although analysts remain positive on the company’s outlook, it’s safe to assume that those losses will bear greater scrutiny moving forward.

That said, further growth is on the horizon and XPeng will be judged by its ability to sell greater and greater volumes of its vehicles. 

Fortunately for investors and the company, the outlook there is positive.

XPeng delivered 17,398 vehicles in the second quarter. It has given guidance that it expects to deliver between 21,500 to 22,500 vehicles in the third quarter. That should embolden investors and analysts alike. 

More Growth Ahead

Based on those figures Wall Street projects that the company should record $658 million in sales in the third quarter. 

However, XPeng itself believes results should be much better and is making bold predictions regarding revenue growth. 

In its Q2 earnings report the company projected between 4.8-5.0 billion yuan in revenues in the third quarter. At current exchange rates that equates to between $742-$773 million in revenues, significantly higher than Wall Street’s $658 million expectation. 

Takeaway

Broader worries are holding XPEV stock down, which isn’t necessarily a bad thing. When a company performs well and is held lower by external forces, that’s often a buying opportunity. 

That looks to be the case here. Yes, China will want greater access to XPeng’s data, but that won’t invalidate the demand for its vehicles. The growth of this company is phenomenal.

Again, once there is greater clarity regarding regulatory headwinds, XPEV will rise. That’s why those who buy in now stand to gain the most. The risk doesn’t appear substantial, but the upside does.

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.”