ChargePoint (NYSE:CHPT) stock has had a bumpy ride down, losing more than 40% so far this year, but a change may be in the wind.
Navigating the stock market can be a daunting task. It’s important to know what you’re doing and have an understanding of how things work.
However, it becomes doubly difficult to analyze a completely new investment space, such as electric vehicles.
Every day, you will see a new company through their hat into the mix. However, while EV manufacturing companies can crash and burn, the infrastructure powering them is a safer investment. That is why ChargePoint deserves your attention as it looks to have bottomed out.
The electric vehicle infrastructure company is changing hands for a little more than twenty bucks while shares have an all-time high of $49.48 apiece.
So, you have a company trading at a very interesting discount. CHPT is not an EV manufacturer, but it makes something critical to the adoption of EVs.
President Joe Biden has laid out an ambitious infrastructure plan that includes an extensive electric vehicle charging stations funding component.
The $7.5 billion promised in the bill does not cover the cost to build a U.S. charging network.
Consulting firm AlixPartners calculates the total cost of building a global EV infrastructure is $300 billion, including $50 billion for America. But the Biden plan is a welcome development.
As EVs become more prevalent, the U.S. government will have to invest heavily in this area to meet local and domestic targets.
ChargePoint will be the net beneficiary of the general pivot towards EVs. A “picks and shovels” play, it will continue to rise alongside the industry. Do not expect explosive growth like some of the meme stocks out there, but every year, this investment will continue to grow at a healthy pace.
Earnings Highlight Positive Operational Trends
Chargepoint recently reported stellar numbers in its second-quarter fiscal 2022 earnings report. CHPT stock jumped approximately 9% as a result of the announcement.
Revenue soared 61% in the quarter to reach $56.1 million from $35.0 million in the year-ago period. Growth catalysts favor Chargepoint as demand grows for these types of facilities and appliances among eco-friendly drivers worldwide.
The company saw strong growth in the charging systems, with revenue up 91% to $40.9 million, but low quality due to a margin on hardware sales only at 18%. Subscription revenues also didn’t see much increase despite how software-based they are following high demand in the last quarter.
ChargePoint’s revenue is expected to reach $230 million this year, up from about $200 million prior projection. Analysts had estimated that they would generate full-year sales amounting to around $208m until the company announced their earnings report, which increased after discovering strong growth during Q2.
ChargePoint is making money hand over fist with their chargers. The key is that they don’t own any. The business model relies entirely on demand-pull.
If people want access to charge at your location, then you’ll get paid for each transaction; businesses are seeing an increase in sales because more electric cars show up than ever before (a trend expected to continue).
Risks Associated With the Thesis
During the quarter, the company’s operational cash flow was $23.7 million, up nearly 54% from last year’s figure of $15.4 million. It does not present a near-term liquidity issue as they have over two billion in assets, and cash on the balance sheet is $618.5 million as of July 31, 2021.
ChargePoint’s margins may be low, but they are necessary to maintain the high-cost structure of their company. The company spent $40 million on R&D during Q3 alone to develop software solutions needed within subscription offerings.
Looking ahead, one area of concern could be dilution. A lot of the finance required for the company’s operations might come from equity issues. The stock price, until recently, was on fire.
Management will want to tap this source of finance and strike while the iron is hot. Stockholders might not object to this strategy if its short term in nature. However, if the issue persists, equity issues may become a problem.
In addition, many people work from home permanently or on a semipermanent basis, so they aren’t parking their cars in office lots. This limits the immediate need for companies to buy charging stations, creating a supply glut. Both these factors could end up putting a lot of pressure on CHPT stock.
CHPT Stock Is a Steal After Steep Drop
The key investor takeaway is that CHPT stock is a less risky bet than some of the other major EV plays out there, particularly after beating estimates and guiding up for the year. The stock has a substantial foothold in an ultra-competitive EV charging station space.
The world is moving away from its current fossil fuel-based transportation system. As a result, ChargePoint is positioning itself as a major player in this new zeitgeist.
Their products allow drivers of alternative cars and trucks greater access points for recharging their electric vehicles when needed, along with discounted rates on charging stations that will help them transition into buying cleaner energy sources.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.