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Tuesday, February 7, 2023
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Why XPeng and Petco Were Wednesday’s Winning Stocks

The stock market got off to a slow start on Wednesday morning, as many market participants were looking forward to comments from Federal Reserve chair Jerome Powell about the central bank’s likely course of future monetary policy. Major market benchmarks opened close to where they finished the previous day on Tuesday, with some indexes seeing modest gains.

Despite the quiet open, however, some stocks shot higher. XPeng (XPEV 35.49%) has gotten a lot of attention in the electric vehicle (EV) industry in China, and its latest financial report was positive enough to send its stock sharply higher. Meanwhile, pet lovers continue to help bolster the business prospects of Petco Health and Wellness (WOOF 12.38%), with investors looking forward to what they hope will be better stock price performance in 2023.

XPeng drives ahead

Shares of XPeng opened higher by 15% on Wednesday morning. The Chinese EV manufacturer faced some struggles during the third quarter, but investors seemed to anticipate better times ahead.

XPeng’s unit sales numbers for the third quarter were mixed. Total deliveries of 29,570 were up 15% year over year but represented the third straight sequential quarterly decline. Although deliveries of XPeng’s P7 smart sports sedan picked up by nearly 800 units from three months ago, the 16,776 P7s delivered were down by nearly 3,000 from the same period a year ago.

Financial results showed similar challenges. Vehicle sales revenue rose 14% year over year to $880 million, but the figure was down 10% from the second quarter. Net losses also widened from year-ago levels, with adjusted losses of $0.36 per American depositary share.

Yet shareholders were encouraged by XPeng’s efforts to restructure its organization, control costs, and adopt updated strategies. The EV automaker expects to boost both sales volumes and average selling prices through rollouts of new technology. With investors paying more attention to stocks of Chinese companies in light of recent events, XPeng could see continued upside if it can execute well on its business plans for the rest of the year and in 2023.

Petco shows its resilience

Shares of Petco Health and Wellness were up 10% early Wednesday morning. The pet products retailer reported third-quarter results for the period ending Oct. 29 that satisfied shareholders even though they included some less encouraging aspects about the challenges the business faces.

Petco’s third-quarter numbers were mixed. Revenue climbed 4% to $1.5 billion, with comparable sales climbing 4.1%. That marked the 16th straight quarter that Petco had posted positive comps. However, adjusted net income fell 20% to $42.9 million, leading to a decline in adjusted earnings to $0.16 per share.

CEO Ron Coughlin was generally upbeat about Petco’s performance, arguing that its business model offers competitive advantages that enhance the inherent resiliency of the pet products retail category through macroeconomic challenges. Customers are prioritizing pet health and wellness by buying high-quality food and obtaining veterinary care and services.

Shareholders even shrugged off a reduction in guidance for Petco’s bottom line for the full year. Petco reiterated its prior guidance for revenue of between $5.975 billion and $6.05 billion, but it cut its adjusted earnings-per-share range by $0.02, now expecting between $0.75 and $0.79 on the bottom line for fiscal 2022.

Petco has been a controversial stock, attracting both buyers and short-sellers. If strategic moves like entering the pet insurance industry and offering memberships to generate recurring revenue gain traction, however, then today’s gains in Petco stock could be the beginning of a longer run higher.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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