XP Inc. has just seen a sharp share price reset, and the question now is whether the current market value lines up with the returns it earns on its capital. After a politically charged selloff in Brazil, investors are weighing if the business performance behind XP stock justifies where the price has landed.
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The share price fell 48.1% over the past week, which puts fresh focus on whether the recent drop has moved the valuation closer to or further from what XP’s capital returns might support.
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Following President Lula’s election win and the resulting concerns about Brazil’s economic path, investors are reassessing how policy choices could affect XP’s ability to reinvest client assets profitably and sustain attractive returns on the capital it deploys.
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What if you looked at XP through its earnings instead? See what XP’s 8.1x P/E says about the price.
The issue now is whether the returns XP earns on its capital are strong and resilient enough to make the current share price look sensible.
If you want context on XP’s recent swing and how other companies line up on quality and valuation, compare it with 29 high quality undervalued stocks.
Does XP Look Undervalued on Excess Returns?
The Excess Returns model looks at how much profit XP can earn above its cost of equity on each unit of shareholder capital. For XP, the inputs point to a business priced as if its profit engine is much weaker than the model suggests.
Book value sits at $48.93 per share with a stable book value estimate of $55.66 per share, while stable EPS is $13.24 per share based on forecasts from 9 analysts. The model uses a cost of equity of $6.64 per share and an excess return of $6.61 per share, paired with an average return on equity of 23.80%. This implies XP is expected to earn more on its equity base than that required cost. After the sharp selloff following President Lula’s election win and the concerns around Brazil’s policy direction, the slump in the share price to $15.71 helps explain why the market valuation sits below what these excess returns would support. Find out what XP could be worth using our Excess Returns estimate.
The XP Narrative: What Would Justify Today’s Price?
Narratives on XP pick up where the valuation puzzle leaves off and spell out which paths for XP’s growth, margins and earnings would need to play out for the current share price to look materially higher or lower over time. Each scenario ties a fair value to a specific mix of potential catalysts and risks around XP’s business so you can track which version of the story is actually unfolding on Simply Wall St’s Community page.
