A class action lawsuit was filed against XPEL, Inc. (XPEL) by Levi & Korsinsky on August 8, 2024. The plaintiffs (shareholders) alleged that they bought XPEL stock at artificially inflated prices between November 8, 2023, and May 2, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought XPEL stock during that period can click here to learn about joining the lawsuit.
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XPEL engages in the manufacturing and marketing of protective films and coatings, including automotive paint protection, surface protection, architectural window films, and ceramic coating films.
XPEL’s Misleading Claims
According to the lawsuit, XPEL and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the Company’s market share and revenue growth from SEC filings and related material.
For instance, during an earnings call during the Class Period, XPEL’s CEO stated that the automotive aftermarket was expected to see an organic growth rate of roughly 15% to 20%. He even stated that he does not see direct cannibalization of business between its segments since the aftermarket business had become bigger for XPEL.
To summarize, the defendants made misleading statements about the company’s sales expectations and market share potential, even though it was facing intense competition and losing ground to rivals. XPEL was becoming overdependent on its existing customers to grow its revenues.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business practices and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors by overstating the company’s sales and market share growth expectations.
The information became clear on May 2, 2024, when XPEL released weaker-than-expected Q1 FY24 results. Diluted earnings per share of $0.24 fell compared to Q1 FY23’s figure of $0.41. Revenue rose only 5% year-over-year owing to a 78% decline in revenues from China and slower sales growth in the U.S. Additionally, XPEL slashed its full-year Fiscal 2024 sales growth guidance to be between 8-10% from the 15% projected earlier.
The company cited losing customers in the aftermarket channel and lower EV sales as reasons for falling revenues. Following the news, XPEL shares fell nearly 39% on May 2.
To conclude, XPEL misled investors about the company’s sales and market share prospects. In the past year, XPEL stock has declined nearly 44%, causing massive damage to shareholder returns.
