Investors with a sizeable risk appetite may consider investing in growth stocks that are part of the electric vehicle (EV) segment to potentially generate market-beating returns. The transition towards battery-powered vehicles is inevitable, making companies such as XPeng (NYSE:XPEV) and NFI Group (TSX:NFI) top investment options right now. Let’s see why.
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Is NFI a good EV stock to buy?
Valued at a market cap of $1.6 billion, NFI Group manufactures and sells buses in North America, Europe, and the Asia Pacific. It offers heavy-duty transit buses as well as after-market services. The company’s product portfolio includes zero-emission vehicles, motor coaches, hydrogen fuel-cell buses, and electric trolleys.
In the last 12 months, NFI Group has reported revenue of $3.07 billion, up from $1.45 billion in 2024. Unlike several other electric vehicle manufacturers, NFI reports an operating profit, ending the third quarter (Q3) with an operating margin of 3.7%.
In the September quarter, NFI Group increased its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) by 375% year over year. It reported a gross margin of 12.2%, the highest in almost four years, while new orders grew by 8.2% to 1,050 equivalent units. NFI ended Q3 with a strong book-to-bill ratio of 115%, while its backlog stood at a record $12 billion.
NFI emphasized that it is seeing reduced competition in transit bids in North America and is often the sole bidder in many cases, providing it with pricing power. For instance, since 2021, heavy bus prices have increased by 62%, while coach prices have risen by 27%. It claimed North American public transit slots for 2025 have already been sold out.
In 2025, NFI expected adjusted EBITDA to grow over $350 million. A focus on profit margins should enable the company to improve the return on invested capital to over 12% next year.
Analysts tracking the TSX stock expect sales to grow to $3.8 billion in 2025, up from $2.68 billion in 2023. Comparatively, its earnings are forecast to improve to $0.71 per share in 2025 from a loss per share of $1.27 in 2023.
So, priced at 19.4 times forward earnings, NFI stock trades at a 50% discount to consensus price target estimates in December 2024.
XPeng stock
Valued at a market cap of $11.6 billion, XPeng designs, develops, manufactures, and markets EVs in China. In the September quarter, XPeng delivered 46,533 units, an increase of 16% year over year, while sales rose by 18.4% to $1.39 billion. Importantly, its gross margins improved to a quarterly record of 15.3%.
XPeng expects to generate a positive free cash flow in the second half of 2024, enabling it to end the year with $5.5 billion in cash, up from $4.91 billion in Q3.
XPeng is banking on the strong performance of its P7+ vehicle, which has already secured more than 30,000 orders.
The expansion of its manufacturing capabilities should help XPeng benefit from economies of scale and end 2026 with a free cash flow of almost $700 million, according to consensus estimates.
So, priced at 16.6 times forward free cash flow, XPeng is positioned to outpace its EV peers if it can achieve Bay Street’s projections. Currently, the EV stock trades at a discount of 18% to average analyst price target estimates.
