XP Inc.'s Share Cancellation: A Strategic Masterstroke or a Risky Gamble?

The cancellation of over 12 million shares by XP Inc.—Brazil’s leading financial technology platform—has sent ripples through markets, signaling both confidence in its future and a bold move to boost shareholder value. With shares reduced by 2.2% to 527.9 million, the company’s decision underscores its capital allocation priorities at a critical juncture. But as XP navigates regulatory scrutiny and short-seller allegations, investors must ask: Is this a strategic triumph or a distraction from deeper vulnerabilities?

The Capital Allocation Playbook: Boosting EPS or Buying Time?

XP’s move to retire treasury shares is a classic earnings-boosting tactic. By reducing the outstanding share count, the company directly increases earnings per share (EPS) and could drive up its stock price. This is particularly relevant given its current P/E ratio of 12.6—a relative bargain in a sector often trading at higher multiples.

But the timing raises questions. The decision follows months of turbulence, including a controversial short-seller report alleging a Ponzi-like structure. By repurchasing shares, XP’s management may be attempting to signal confidence in its financial integrity.

Analysts, however, are split. Morgan Stanley’s upgrade to "Overweight" and Itaú BBA’s "Outperform" rating suggest that the stock’s 57% year-to-date return (as of May 2025) isn’t a fluke. Yet, the share cancellation could also be a preemptive maneuver to offset potential dilution from future obligations or regulatory demands.

Market Valuation: A Discounted Bargain or a Trap?

The company’s $18.57 share price and $10 billion market cap reflect optimism about its growth trajectory. Its open platform, offering over 800 investment products, positions XP to capitalize on Brazil’s rising middle class and evolving financial landscape.

Critically, XP’s P/E of 1.2x below the sector average could indicate undervaluation—or investor skepticism. The InvestingPro "GOOD" rating highlights the positives, but the 2.79/4 score leaves room for doubt. A key question is whether the share cancellation will translate into sustained earnings growth or merely paper gains.

Signaling Effects: Confidence or Distraction?

The cancellation’s timing relative to the Ponzi allegations is no accident. By shrinking the share count, XP’s leadership is sending a clear message: We believe in our stock more than ever.

Yet, the allegations—denied by XP—linger as a Sword of Damocles. If proven, they could unravel years of growth. Conversely, a swift rebuttal or regulatory clearance could cement XP’s credibility. The company’s financial statements have withstood scrutiny so far, but the cloud persists.

Investors must weigh this risk against XP’s fundamentals. Its advisory services and platform-driven model are hard to replicate, and Brazil’s financial democratization story remains intact. The share buyback could amplify returns if the company executes its strategy without missteps.

Conclusion: A Buy at These Levels—But Keep an Eye on the Horizon

XP’s share cancellation is a double-edged sword. On one hand, it’s a disciplined capital move that could amplify shareholder returns in a low-growth environment. On the other, it’s a defensive response to reputational threats.

For investors, the calculus hinges on two factors: confidence in XP’s ability to resolve the short-seller claims and its capacity to sustain growth amid Brazil’s macroeconomic and regulatory challenges.

With analyst support, a compelling valuation, and a 57% YTD return, XP’s stock looks primed for further upside—if the clouds clear.

In a market craving both value and growth, XP Inc. is a bet on Brazil’s financial future—and a gamble that its leadership can navigate the storm. For the bold, now may be the moment to act.

Final thought: When a company shrinks its shares but expands its vision, the question isn’t just about math—it’s about trust.