Has XP’s 62.8% Rally Left Further Upside After Digital Platform Expansion?

• If you have been wondering whether XP is still a bargain after its recent run, this breakdown will help you decide if the current price makes sense or if there is more upside on the table.
• The stock is up 0.7% over the last week, 6.2% over the past month, and an eye catching 62.8% year to date, though the 5 year return of -42.4% is a reminder that sentiment around XP can swing sharply.
• Recent headlines have focused on XP’s continued expansion of its digital investment platform in Brazil and ongoing efforts to diversify revenue beyond traditional brokerage, which have supported improving investor sentiment. At the same time, market commentary has highlighted how the company is positioning itself against both local banks and fintech rivals, feeding into the narrative behind the rally.
• Despite that strong share price recovery, XP currently earns a 5/6 valuation score. This suggests it still screens as undervalued on most of our checks. Next we will unpack what that really means across different valuation methods, then finish with a more intuitive way to judge the stock’s true worth.

XP delivered 49.5% 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 estimates what shareholders earn above the basic cost of equity, then capitalizes those extra profits into an intrinsic value per share.

For XP, the starting point is a book value of $45.01 per share and a stable earnings power of $11.75 per share, based on weighted future return on equity estimates from 10 analysts. With an average return on equity of 24.45%, the company is projected to continue generating attractive profitability on its capital base.

The model assumes a cost of equity of $6.01 per share, implying that XP is expected to earn an excess return of $5.74 per share over that hurdle. Combined with a stable book value estimate of $48.05 per share, drawn from future book value forecasts by 5 analysts, this supports a robust theoretical valuation under the Excess Returns framework.

Putting these inputs together, the model arrives at an intrinsic value that is 7.3% above the current share price, suggesting XP trades only modestly below its estimated worth.

Result: ABOUT RIGHT

XP is fairly valued according to our Excess Returns, but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

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 a consistently profitable business like XP, the price to earnings ratio is a useful yardstick because it directly links what investors pay today to the company’s current earnings power. In general, faster earnings growth and lower perceived risk justify a higher PE, while slower growth or higher uncertainty call for a lower multiple.

XP currently trades on a PE of 10.48x, which is well below both the Capital Markets industry average of about 23.90x and the broader peer group average of roughly 22.94x. On the surface, that discount suggests the market is either skeptical about the durability of XP’s growth or assigning it a higher risk profile than many of its rivals.

Simply Wall St’s Fair Ratio framework estimates what a reasonable PE should be for XP given its specific mix of earnings growth, profit margins, risks, industry positioning and market capitalization. That tailored Fair Ratio comes out at 16.66x. This is more informative than a simple comparison with peers or the industry, as it adjusts for the company’s own fundamentals rather than assuming it should trade like an average stock. With XP’s actual PE of 10.48x sitting well below this Fair Ratio, the shares appear cheaply priced on an earnings basis.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your XP Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way to connect your view of a company’s story with a concrete forecast and a fair value estimate, then compare that to today’s price. On Simply Wall St’s Community page, millions of investors build Narratives by setting their own assumptions for XP’s future revenue, earnings and margins, which the platform then turns into a dynamic forecast and fair value that updates automatically as new news or earnings arrive. This can make it easier to decide on potential actions, because you can see at a glance whether XP’s current price sits above or below the fair value implied by your Narrative. For example, one XP Narrative might lean optimistic and support a fair value close to $26, based on assumptions of strong asset growth and resilient margins, while a more cautious Narrative could land nearer $19, reflecting assumptions of tougher competition and slower inflows. That spread shows how different but clearly defined stories can drive very different investment views.

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.