Electric vehicle infrastructure company ChargePoint got hit hard by the tech sell-off in late-2021. The firm was trading as high as $46 a couple of years ago, but slumped to $26 at the start of November last year. Unfortunately, that wasn’t the worst of it; CHPT continued to fall, eventually settling where it is now, almost 70% down from all-time highs, and changing hands for around $14 a share.
However, that correction might not actually be a bad thing – it aligns the business with a saner, more reasonable valuation, and even offers potential investors a good opportunity to open a position in the company.
Let’s take a closer look at ChargPoint, and see what’s really going on here.
ChargePoint Business Model Is Surprising
ChargePoint runs a network of EV charging stations across North America. The company has an interesting revenue model, one that does not rely on the amount of electricity consumed by its users. Rather, CHPT generates cash from the sale of its chargers and other hardware, as well as from subscription fees it takes from software services, and the warranties it sells with them.
The company’s main purchasers tend to be universities, hospitals, as well as a number of high-profile commercial businesses such as Astra Zeneca, Netflix and Microsoft. In addition to its hardware offerings, some fleet operators also buy its software to help manage their charging needs.
Source: Unsplash
Latest Financial Results
While the hardware segment brought in 73% of CharegePoint’s total revenue in the third quarter, it’s actually the software business that has the greatest potential for growth. The higher margins and recurrent nature of its subscription-based products offers the likeliest route for profitability in the long-term.
Indeed, ChargePoint still has something of a profitability problem right now. The company has yet to manage net positive incomes, although, being an “early stage” outfit, that isn’t too much of a worry. However, its recent earnings miss of $0.05 on a GAAP EPS of -$0.21 should give investors something to think about.
CHPT’s quarterly revenue of $65 million was up 79% year-on-year, suggesting that the firm has no issue with increasing its top-line. The company even announced expected full year revenue to fall in the range of $235-240 million, somewhat above the Wall Street consensus of $231.75 million.
Is ChargePoint a Buy, Sell or Hold?
One of the clearest problems facing ChargePoint at the moment is just the sheer amount of money the company needs to spend to expand its network, with the business having clocked in a net loss of $69 million during the last quarter – a figure even larger than its own revenue for that period.
Furthermore, its operating expenses in Q3 more than doubled, with research and development costs making up the bulk of that receipt.
Admittedly, the scale of the task ahead was never going to be small; CHPT is essentially creating the infrastructure for a new industry from the ground up, which is always going to cost a small – if not a large – fortune.
The question for investors boils down to one thing: is it plausible that the business will ever turn a profit?
To answer this we have to examine the growth drivers and catalysts that will propel ChargePoint into profitability. At least here there’s some good news. To begin with, the fraction of CHPT’s software revenue will increase as time goes on, since, once the EV charger has been sold, the revenues that the machinery produces will come from recurring sources – and as mentioned earlier, these will enjoy margins.
Secondly, the EV industry is the epitome of a perfect growth sector, and it appears that any properly run company with any kind of moat in the space is almost surely guaranteed to succeed. Given that CHPT’s interest lies in creating an entirely new industrial framework, its business moat is already secured.
Lastly, with approximately 163,000 ports, ChargePoint currently operates one of the largest EV charging businesses in the world, of which about 50,000 of those ports are located in Europe. This disparity suggests there’s still plenty of room for expansion on the continent, which should offer new and reliable revenue streams in the future.
Pessimism Is High Right Now
While not entirely a risk factor in-and-of itself, at over 15% short interest, there’s certainly some pessimism coming from Wall Street about the stock.
In fact, this might well have to do with the very risk that ChargePoint is in competition with some serious players in the space, including Tesla, Blink and EVgo. There’s also some concern that its chargers are not the fastest on the market, with the majority of its ports being the slower level 2 kind.
What Is ChargePoint Price Target?
ChargePoint technically operates in the Industrials sector, which necessarily makes its valuation metrics seem worse than they really are. For instance, the company’s trailing twelve month price-to-sales multiple sits at what might appear, for the industry, an inflated 15x. However, CHPT is still growing, and considering that a big part of its business model is essentially an IT operation, this ratio is actually pretty good.
As alluded to before, the company does have a problem with profitability, and its EBITDA margin of -100% proves this quite succinctly. That said, ChargePoint’s forward revenue growth of 38% is definitely something to cheer about, as is its year-on-year working capital growth of 128%.
This figure is crucially important for CHPT, as it will need to manage its liquidity for the foreseeable future if it wants to continue growing and expanding. A solid working capital metric also implies that ChargePoint has good operational efficiency, and that its current liabilities aren’t hampering the company just yet.
Analysts believe that annual revenue estimates for ChargePoint could be as high as $412 million in January 2023. If income from its software segment does begin to outstrip hardware sales, a top-line like this could mean the business is well on the way to making a profit.
All other things being equal, it’s not unimaginable that the stock could double in year from its current lows. And if there’s a recovery in high-growth companies as well, that could be somewhat of an underestimate.
Summing it all up analysts CHPT price target is currently $28, representing an upside opportunity of as much as 106% at the time of research.
#1 Stock For The Next 7 Days
When Financhill publishes its #1 stock, listen up. After all, the #1 stock is the cream of the crop, even when markets crash.
Financhill just revealed its top stock for investors right now... so there's no better time to claim your slice of the pie.
See The #1 Stock Now >>The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.