XP Inc.'s Buyback Boost: How Smart Capital Allocation Fuels Value Creation

XP Inc. has once again demonstrated its prowess in capital allocation with its robust Q1 2025 results and the announcement of a R$1 billion share buyback program. The company’s strategic approach to deploying capital—balancing growth investments with shareholder returns—is creating a compelling opportunity for investors. Let’s dissect how XP’s financial performance and capital strategy position it to deliver outsized gains in the coming quarters.

Q1 2025: Growth Anchored in Diversification and Efficiency

XP’s Q1 results underscore a company in command of its destiny. Total client assets surged to R$1.3 trillion, a 13% year-over-year (YoY) increase, driven by strong net inflows and market appreciation. Retail revenue jumped 10% YoY to R$3.44 billion, with fixed income revenue soaring 44% to become the largest contributor. This diversification away from equities—which fell 15% YoY—highlights XP’s ability to navigate market cycles.

The company’s cost discipline is equally impressive. Selling, general, and administrative (SG&A) expenses dropped 10% quarter-over-quarter (QoQ), while the efficiency ratio hit a record-low 34.1%, the best since its IPO. These metrics, coupled with an adjusted ROAE of 24.1%, signal operational excellence.

The R$1 Billion Buyback: A Bold Stance on Value Creation

The buyback program, set to run through December 2026, is a masterstroke. With shares trading at a 57% year-to-date gain and an undervalued price relative to InvestingPro’s Fair Value analysis, XP is capitalizing on its strong balance sheet to return cash to shareholders. This move not only reduces dilution but also signals confidence in its stock’s upside.

The buyback aligns with XP’s capital management goals: maintaining a BIS ratio within 16%-19% by 2026 while prioritizing growth. Previously, XP canceled over 12 million shares, reducing its float by 2.2%. With this new program, the share count could shrink further, amplifying earnings per share (EPS) growth.

Why This Matters for Investors

1. Margin Resilience: Despite seasonal QoQ declines in some metrics, XP’s EBT margin expanded 220 basis points YoY to 29.1%, proving its ability to protect profitability.
2. Debt Discipline: With 80% of its credit portfolio collateralized by investments, XP mitigates risk while growing its lending business.
3. Analyst Optimism: Morgan Stanley’s Overweight rating and a $24 price target, alongside Itaú BBA’s Outperform, reflect Wall Street’s confidence in XP’s trajectory.

Navigating Risks, Seizing Opportunities

While risks like Brazil’s economic volatility and regulatory changes linger, XP’s diversified revenue streams and record NPS score of 73 reinforce its client-centric strength. Short-seller allegations, swiftly debunked, have not dented its fundamentals.

Conclusion: A Compelling Case for Action

XP Inc. is a textbook example of a company that converts capital efficiency into shareholder value. With its buyback program, robust margins, and a pipeline of growth initiatives—from retirement plans to cross-selling in energy derivatives—XP is primed to outperform.

For investors, the question isn’t whether XP will grow, but how much faster they can capture gains by acting now. The buyback and its R$1.3 trillion asset base form a powerful tailwind. This is a stock to buy and hold for the long haul.

Act swiftly—XP’s capital allocation strategy isn’t just smart; it’s a catalyst for value creation.