Electric vehicle (EV) charging solutions provider ChargePoint Holdings, Inc. (CHPT) offers a portfolio of hardware, software, and services for residential, commercial and fleet customers in the United States. After an SPAC merger, CHPT made its debut on the New York Stock Exchange on March 1, becoming the world’s first publicly traded global EV charging company.
But CHPT’s stock price has slumped 10.7% over the past months. The stock’s premium valuation despite the company’s unimpressive financials made investors skeptical about the stock’s upside potential in the near term.
Although the EV sector’s market potential is enormous, the risk of heated competition in the nascent sector is high. And with dominant players generating higher profit margins and revenues, it may be tough for CHPT to survive in the crowded EV space.
Here is what we think could influence CHPT’s performance in the near term:
Competitive EV Charging Landscape
With several automakers, including Tesla, Inc. (TSLA), investing heavily in EV charging solutions as the federal government signals its full support in expanding EV charging infrastructure with the White House’s proposed $2 trillion infrastructure bill, the EV space is getting heated. With competition fierce among the dominant players and other pure-play EV charging companies, a staggering number of lesser-known companies are finding it difficult to keep pace with the dominant players. As such, CHPT’s lower profitability and increasing losses could cause the stock to retreat further.
CHPT’s revenues have declined 2% year-over-year to $42.39 million in the fiscal fourth quarter ended January 31, 2021. Its total operating expenses rose 7.1% from their year-ago value to $44.22 million, while its interest income declined 96.7% year-over-year to $17 thousand. Furthermore, the company reported a $35.32 million operating loss over this period. And its net loss came in at $103.59 million, compared to a net loss of $33.81 million in the fourth quarter of 2020.
The company’s 22.5% trailing-12-month gross profit margin is lower than the industry average 28.9%. CHPT’s asset turnover ratio of 0.6% is 25.2% lower than the industry average of 0.8%. And its trailing-12-month levered free cash flow margin and EBIT margin are negative 47.6% and 82.6%, respectively.
In terms of trailing-12-month EV/Sales, CHPT is currently trading at 42.44x, which is 1,888.9% higher than the industry average 2.13x. Its forward Price/Sales multiple of 29.28 is 1,759% higher than the industry average 1.58. Also, the stock’s 10.91 forward Price-to-Book ratio is 247.3% higher than the industry average 3.14.
POWR Ratings Reflect Bleak Prospects
CHPT has an F overall rating, which translates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 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 an F grade for Value, and a D for Quality. This justifies the stock’s premium valuation and low profitability.
It has a C grade for Momentum, which is consistent with the stock’s negative price returns over the past month.
In addition to the grades we’ve highlighted, one can check out additional CHPT ratings for Sentiment, Stability, and Growth here.
CHPT is ranked #85 of 90 stocks in the B-rated Industrial – Equipment industry.
There are several top-rated stocks in the same industry. Click here to view them.
CHPT’s high valuation and low profitability have become causes for concern for investors now that the EV charging space is becoming very competitive. We believe the stock may witness further downside given its inadequate financials. So, it’s wise to avoid it now.
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CHPT shares were trading at $23.97 per share on Friday morning, up $1.90 (+8.61%). Year-to-date, CHPT has declined -40.19%, versus a 11.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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