Quick Take

XP (NASDAQ:XP) went public in December 2019, with the company and selling shareholders selling a combined 72.5 million shares at a price of $27.00 per share. The firm provides a variety of credit service offerings to individuals and businesses in Brazil.

XP has produced enviable growth results, despite the COVID-19 pandemic, and management has ambitious growth plans.

Over the medium term of 12-18 months, I’m cautiously Bullish on XP from its current level of $41.75.


São Paulo, Brazil-based XP was founded in 2015 and provides debt financial services through its operating channels, branded as XP, Rico, and Clear, which operate as a debt marketplace – offering services of both XP’s partners and its competitors.

Management is headed by CEO and Chairman Guilherme Dias Fernandes Benchimol who holds a bachelor’s degree in business economics.

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XP offers a suite of solutions, including advisory solutions, such as XP Investimentos for retail clients, XP Private for high-net-worth individual clients, XP Investments that is focused for international clients; as well as XP Issuer Services, for our corporate and institutional buyers.

Management says that the Brazilian investment industry is ‘generally inefficient’, expensive by global standards, and often results in poor client experiences, primarily due to the landscape being dominated by five traditional financial institutions with assets worth about $1.5 trillion.

XP has a network of retail investors, institutions, and corporate issuers, accounting for over 1.5 million active clients.

The firm markets its offerings through a variety of marketing campaigns, including advertising through traditional media, such as magazines, television, and newspapers, as well as online and offline advertising, primarily digital media, such as social media accounts, social media influencers, online videos and sponsored blogs.

XP also has digital content and marketing operations that consist of InfoMoney, an investment portal in Latin America, XP Educação, an online financial education portal in Brazil, XP Research, a digital platform with over 500,000 monthly unique visitors, EXPERT, a large investment event in Latin America, as well as the company’s digital Influencers program, with over 3 million followers on social media.

Recent Performance

Top-line revenue by quarter has been impacted by the COVID-19 pandemic in early 2020, but has bounced back smartly since then:

Gross profit by quarter has followed the same trajectory as top-line revenue:

Operating income by quarter has similarly rebounded in 2020 from a low in Q1 2020:

Earnings per share (diluted) have been uneven but are trending upward:

Source for chart data: Seeking Alpha

Since the firm’s IPO pricing, XP’s stock price has risen 54.7 percent vs. the U.S. Capital Markets index’ rise of 11.7 percent and the overall U.S. market’s growth of 20.4 percent, as the chart below indicates:

Source: Simply Wall Street

Valuation Metrics

Below is a table of relevant capitalization and valuation figures for the company:



Market Capitalization


Enterprise Value


Price / Sales


Enterprise Value / Sales


Enterprise Value / EBITDA


Free Cash Flow [TTM]


Revenue Growth Rate


Earnings Per Share [TTM]


Source: Company Financials

Below is an estimated DCF (Discounted Cash Flow) analysis of the firm’s projected growth and earnings:

Assuming the above generous DCF parameters, the firm’s shares would be valued at approximately $28.85 versus the current price of $41.74, indicating they are potentially currently overvalued, with the given earnings, growth, and discount rate assumptions of the DCF.


In its last earnings call, covering Q3 2020’s results, management highlighted the growth of its IFA (Independent Financial Advisor) draws, which occurs organically through word of mouth rather than through an external network.

The firm sees this advisor growth as a strong contrast to many Brazilian banks closing their branches for cost reduction purposes.

As a result, management intends to invest more in drawing IFAs to its platform.

Also, the firm has recently begun to offer some banking products such as a wholesale bank, cash solutions, and foreign exchange offerings, likely in response to bank retrenchment. This serves to add TAM to its ecosystem.

As to its financial results, XP saw strong growth in assets under custody in Q3, an all-time high, which is remarkable, given the effects of the COVID-19 pandemic.

Notably, management is seeing a transition in asset allocations from historically high-yielding fixed income toward equities.

So, the firm is seeing investment growth in general equities but also REITs and alternatives as well.

XP said that its take rate in Q3 was 1.2, stable versus Q3 2019.

However, operating leverage dropped from 35.5% in Q3 2019 to 31.9% in the most recent quarter.

Looking ahead, management believes that it is still a small player in a potentially R500 billion market size that it is seeking to add product verticals to its platform with low or zero marginal costs.

XP is certainly growing revenue at a high rate, which likely is the reason for the high stock price.

Given generous assumptions for the DCF, it shows the stock is overvalued. However, I tend to be partial to high-growth stories, and XP appears to be executing well despite the COVID-19 pandemic.

My view is that the shares are fully valued, given the dampening effects of the pandemic on the firm’s growth prospects in the short term.

As Brazil begins to move past the pandemic in 2021, I suspect XP’s shares will possibly see an uptick, so I’m cautiously Bullish on the stock at its current level of $41.75, but over the next 12-18 months.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.