Is ChargePoint Holdings a Buy Under $20?

One of the largest charging networks providers, ChargePoint Holdings, Inc. (CHPT), made its stock market debut on March 1, 2021, merging with a special purpose acquisition company (SPAC), Switchback Energy Acquisition Corporation. The company has made several acquisitions over the past few months. For example, it acquired ViriCiti in August 2021. Also, in July 2021, it agreed to acquire a leading European e-mobility technology provider, ‘has·to·be’. However, these acquisitions have taken a toll on CHPT’s already weak financials.

The stock has lost 17.4% over the past month and 34.5% over the past three months to close yesterday’s trading session at $18.66. On July 14, the company announced the pricing of its previously announced underwritten secondary offering of 12 million shares of its common stock, whereby the selling shareholders would receive all of the proceeds from the offering. However, this news led to investors’ pessimism. The company witnessed increased supply chain costs and reported a loss in the second quarter. So, the stock’s near-term prospects look bleak.

Here are the factors that could influence CHPT’s performance in the upcoming months:

Intense Competition

As several companies have been vying for a market share in the growing electric vehicle (EV) charging industry, CHPT is facing intense competition. The competitors include Blink Charging Co. (BLNK) and Volta Inc. (VLTA). Moreover, EV pioneer Tesla, Inc. (TSLA) has been developing the Tesla Supercharger network and announced in July 2021 that the network would be made available for non-Tesla cars this year. Also, General Motors Company (GM) has collaborated with EVgo, Inc. (EVGO) to launch more than 2,700 EV fast-charging stations.

Top Line Growth Doesn’t Translate into Bottom Line Improvement

For the fiscal second quarter ended July 31, 2021, CHPT’s networked charging systems revenue increased 91.3% year-over-year to $40.87 million, while its subscriptions revenue increased 23.1% year-over-year to $12.08 million.

However, its cost of revenue in the quarter came in at $45.34 million, up 74.9% year-over-year. Its loss from operations increased 215.7% year-over-year to $74.29 million, while its net loss increased 140.7% year-over-year to $84.94 million. Also, its loss per share came in at $0.29 compared to $6.97 in the year-ago period.

Stretched Valuation

In terms of forward EV/S, CHPT’s 22.54x is 1,083.8% higher than the industry average of 1.90x. Likewise, the stock’s forward P/S of 25x is 1,537.1% higher than the industry average of 1.53x. Moreover, its 11.34x forward P/B is also significantly higher than the industry average of 3.10x.

POWR Ratings Reflect Bleak Outlook

CHPT has an overall rating of F, which equates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. CHPT has a D grade for Growth, consistent with analysts’ expectations that its EPS will remain negative in fiscal 2022 and 2023.

The stock has a D grade for Quality, in sync with its trailing-12-month gross profit margin of 20.61%, 29.4% lower than the industry average of 29.19%. In addition, its trailing-12-month ROCE, ROTC, and ROTA are negative compared to the industry averages of 12.40%, 6.35%, and 4.73%, respectively.

CHPT has an F grade for Value, consistent with its higher-than-industry valuation ratios. Moreover, it has an F grade for Stability.

CHPT is ranked #87 out of 92 stocks in the Industrial - Equipment industry. In addition to the POWR rating grades I’ve just highlighted, we’ve also rated CHPT for Sentiment and Momentum. Get all the CHPT ratings here.

Bottom Line

CHPT has more than 4,000 commercial and fleet customers and has delivered more than 87 million charging sessions. However, the company’s losses widened significantly in the second quarter. Moreover, analysts expect its EPS to decline at a rate of 80.5% per annum over the next five years. So, it could be wise to avoid the stock now.

How Does ChargePoint Holdings (CHPT) Stack Up Against its Peers?

While CHPT has an overall POWR Rating of F, you might want to consider investing in the following stocks from the same industry with an A (Strong Buy) rating: Compagnie de Saint-Gobain S.A. (CODYY), Finning International Inc. (FINGF), and Sumitomo Electric Industries, Ltd. (SMTOY).

CHPT shares were trading at $18.86 per share on Friday morning, up $0.20 (+1.07%). Year-to-date, CHPT has declined -52.94%, versus a 18.55% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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