Wrap Up Your Ride, Practice Safe Driving: XPEL Inc $XPEL

As we approach this rate cutting cycle, there are lots of strategies to choose from. Some people might prefer to be in housing related industries; I have written about Douglas Elliman (DOUG), Opendoor (OPEN), Purple Innovation (PRPL), and recently Hooker Furnishings (HOFT). But housing isn’t the only interest rate sensitive industry, you could also find my old writeup on Malibu Boats (MBUU). Or you could focus on the financial firms that will facilitate the transactions, Rocket Companies (RKT) and SoFi (SOFI). But some people will want to focus on the automotive replacement cycle. Our auto fleet is aging rapidly, and the automotive replacement cycle should be much less affected by the deportations and self-deportations that we are seeing under the Trump administration. I still have my doubts that homebuilders can flourish if we find ourselves with six to eight million fewer people in the country by 2028.

This idea comes from Chris Waller, who also writes about individual stocks, but he does so in a way with which I could never compete. While I write shallow introductions from which the reader’s due diligence can begin, Chris becomes an expert in his chosen companies, and issues forth exhaustive tomes on the subject. I’ve seen shorter graduate theses. I’m not sure which approach is the best, but I’m going to stick with turning over more rocks.

Chris’ exhaustive tome on XPEL Inc can be found here:

Special Report: XPEL

XPEL Inc (XPEL) is an automotive coatings company. Just like every rate sensitive business, it has traded down from the 2021 peak of $92.60 to today’s price of $33.07. And just like my favorite cyclical businesses, revenue has grown from $7.80 per share at that prior peak to $16.23 per share today. And as an added bonus, they have no debt, and they have been GAAP net income positive the whole time. These are my favorite kinds of charts:

XPEL Stock Price:

XPEL TTM Revenue:

XPEL is the market leader in clear Paint Protective Film (PPF) wraps for cars with about 35% market share, even surpassing 3M’s Scotchgard pro series. These are not the colored vinyl car wraps, those are about a $5 billion annual market in the US ($10 billion globally). XPEL’s PPF wraps are clear, and this is about a $580 million annual market, with enormous potential for growth. It is this enormous potential for growth which has made the market so enthusiastic about XPEL, bidding the stock up to a price to sales ratio of 10x, which has since fallen to a price to sales 2x. As I have only just learned recently, a quickly growing market leader in a quickly growing market was the investment philosophy in Richard Koch’s 2010 book, “The STAR Principle.”

Before the recent interest rate hike in 2022, XPEL was growing sales at about 25% year over year. After Jerome Powell hiked interest rates on a relative basis more than at any time in human history, growth slowed to 6% year over year. What are the chances that when interest rates are cut, and the economy starts to get a bit hot, that this particular market returns to fast growth?

What’s so great about Paint Protective Film? XPEL’s self healing urethane film with a 10-year warranty protects the car’s paint coating from rock chips, scratches, UV fading, etc. This helps to preserve the car’s resale value from between 2% to 5% on a $50,000+ vehicle. Taking steps to preserve resale value is a new consumer focus point thanks to the arrival of Tesla, and the uncertainty in the market surrounding resale value. The glossy or matte finish options allows people to customize their ride, as people become wealthier, markets shift from mass production to mass customization.

XPEL’s enthusiasts believe that the PPF market will grow faster than industry reports indicate. Currently, XPEL sells 51% of their wraps in the aftermarket through over a thousand certified installers. Less than 3% of new cars get a protective film wrap today through the dealership, but through enhancing dealership relationships XPEL believes that adoption could grow to reach 20% of the new car market. Goldman Sachs estimates market penetration of between 5% and 10% by 2035. Car dealers are looking for ways to upsell their customers as their gross margins on new cars are under pressure. A favorite tactic is bundling luxury packages into the automotive loan.

While vinyl wraps are more of an aftermarket modification, XPEL is trying to aggressively grow the market for dealership bundling. Dealership gross margins compressed from 5% to 4% roughly after the 2008 crisis, but bundling a $1,500 - $8,000 PPF wrap with 50% margins can help to plug that gap. For a customer who buys an $80,000 luxury vehicle, they can boost the resale value by upwards of 5% and have a better looking and customized ride. It also won’t cost them anything upfront because it will be bundled in with their automotive loan. This could potentially grow the PPF market share for new cars in a relatively short time period, especially if we are “running the economy hot,” and it feels like time for consumers to splurge again.

Regarding new car sales, XPEL probably reaches about 1% of 16 million new cars sold. All PPF products reach about 3%. With lowered interest rates and increased market penetration, XPEL could perhaps in a few years double their sales through the new car channel by growing the PPF market to 5% of new cars with 17 million new cars sold. The bull case, of having 10% market penetration for new cars and constant 35% market share would grow XPEL’s PPF sales by four times. XPEL enthusiasts believe that 20% new car penetration is possible.

The market is currently giving XPEL a price to sales ratio of 2.0x based on recent 6% year over year sales growth. Goldman Sachs’ estimate of 5% to 10% market penetration by 2035 would indicate that sales growth should rebound to 13.5% at least on this interest rate cutting cycle, and the XPEL enthusiasts believe that the old 25% pre Jerome Powell’s rate shock is still obtainable. I am reluctant to believe that XPEL could return to a 10x price to sales ratio, that was partially a zero interest rate phenomenon. But sales have grown significantly since 2021, and the market is getting frothy.

I like to think of myself as a long term investor, but I don’t typically do 2035 price targets, because my style is more based around companies that should get a multiple rerating within the next two to three years. At some point, XPEL’s growth will eventually slow down, so a 2035 price to sales ratio would probably be lower than their 2028 price to sales ratio. The one thing that could keep XPEL’s price to sales ratio high into 2035 would be a focus on share buybacks for their capital allocation strategy.

A 2028 price target based on 13.5% sales growth and a 4x price to sales ratio due to growth expectations would give a share price target of $93.70. This would be a return to 2021 prices, but at much lower multiples, and it’s almost a three bagger in three years. A 2035 price target might need to stay at a 2x price to sales ratio, but could benefit from a bit of share buybacks. That gives a 2035 price target closer to $120, despite another seven years of growth. Growth investing is hard, you have to be able to jump off of the train before multiple compression leads to a flat stock price for a decade.

Only if XPEL follows AutoZone and O’Reilly Auto Parts and funnels all cashflow into share buybacks would a long run price to sales ratio higher than 2.0x be likely. XPEL did announce a $50 million share buyback program in May of 2025, and management has guided that it would prioritize buybacks over dividends. This does give the potential for XPEL to maintain high multiples even after the inevitable growth slowdown. But we don’t have a solid commitment from management that this is their capital allocation policy for the long run.

I am basing these price targets on a 13.5% long run sales growth rate, which XPEL enthusiasts believe is conservative given the company’s ability to grow at a 25% rate previously. It all depends on how hot this economy is going to run after Trump replaced Jerome Powell in seven months, and how successful XPEL is in penetrating the new car sales channel. Either way, XPEL is an interesting way to get exposure to interest rate sensitivity and the K-shaped economy.

Thanks again to Chris Waller for writing 35 pages, conducting 54 interviews, and attending the Window Film and Tint-Off trade conference in Reno. That’s deep due diligence, and I am grateful that someone else is doing it!

XPEL Inc (XPEL) $33.07: $93.70 by the end of 2028

XPEL Inc (XPEL) $33.07: $120 by the end of 2035 (bad capital allocators)

XPEL Inc (XPEL) $33.07: $240 by the end of 2035 (good capital allocators)

There are also a couple of near term catalysts that Chris has uncovered. I am reluctant to give away too much of his hard work for free, so out of courtesy, I’ll put this behind my paywall.