Electric vehicle charging company EVgo Inc. (EVGO) is America’s largest public fast-charging network with more than 800 fast-charging locations. It is also the first charging company in terms of using 100% renewable energy. The stock went public on July 2 after its merger with a special purpose acquisition company Climate Change Crisis Real Impact I Acquisition Corp. However, EVGO’s stock price has dropped 68% since hitting its 52-week high of $24.34 in January.

While an expansion of its EVgo Fleet Charging Solutions and a substantial uptick in EV adoption have led to its customer count exceeding the 300,000 mark, EVGO’s operational losses have widened significantly in the last reported quarter. In addition, the issuance of more than 18 million of its common stock in connection to the exercise of warrants and increased competition in the EV charging market could reinforce negative sentiment in the stock.

Here’s what could influence EVGO’s performance in the near term:

Business Headwinds

The growing adoption of electric vehicles and decreasing price of the lithium-ion battery have resulted in a significant increase in the deployment of EV chargers in the United States. However, the higher installation costs associated with the deployment of charging stations could hinder the growth of EV fast-charging network company EVGO. Moreover, since it is still an early-stage company, competition from dominant players like ChargePoint Holdings (CHPT) and Tesla, Inc. (TSLA), which are increasingly innovating with cutting-edge solutions, could weigh heavily on EVGO.

Issuance of Shares Upon Exercise of Warrants

In July, EVGO issued an aggregate of up to 18.1 million shares of its Class A common stock that are issuable upon the exercise of public warrants at an exercise price of $11.50 per share. In addition, the company registered up to 52.35 million shares of its Common Stock. The EV charging company will not receive any proceeds from the sale of its shares or private warrants, except an aggregate of approximately $208.2 million from the exercised warrants. EVGO plans to use the net proceeds from the exercise of the warrants for general corporate purposes. However, the issuance of shares has caused dilution of shareholder value.

Inadequate Financials

For the second quarter ended June 30, 2021, EVGO’s gross loss came in at $2.77 million. Its operating loss rose 43.8% year-over-year to $17.56 million. EVGO incurred a net loss of $18.42 million, representing a 77% year-over-year increase. Also, its total operating expenses amounted to $14.79 million, up 60% from the prior-year period. In addition, the company reported a net decrease in cash and restricted cash of $6.51 million for the six months ended June 30, 2021.

EVGO’s trailing-12-month asset turnover ratio of 0.1% is 89% lower than the industry average of 1.1%. Moreover, its gross profit margin, EBITDA margin, ROA, and ROE came in at negative 74.9%, 261.3%, 29.1%, and 1,244.7%, respectively. Furthermore, the company’s trailing-12-month cash from operations stood at a negative $6.02 million.

POWR Ratings Reflect Bleak Prospects

EVGO has an overall rating of D, which translates to 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. EVGO has a D grade for Stability. This indicates that the stock is more volatile than its peers.

Also, it has a D grade for Value. The stock’s forward EV/Sales ratio of 32.49x, 2,119.5% higher than the industry average of 1.46x, is consistent with the grade.

In addition, it has a Momentum Grade of C, in sync with its 0.2% share price decline over the past month.

Beyond the grades I’ve highlighted above, we have also rated EVGO for Growth, Quality, and Sentiment. Get all EVGO ratings here.

EVGO is ranked #80 of 92 stocks in the B-rated Industrial – Equipment industry.

Bottom Line

Although EVGO’s rapidly expanding fast-charging network footprint and suite of network innovations have helped accelerate its customer growth, the stock appears to be highly volatile given the business headwinds it could be experiencing due to the intense competition in the fast-growing EV charging market. Furthermore, its growing operational losses could cause its shares to tumble further in the upcoming months. Therefore, the stock is best avoided now.

How Does EVgo Inc. (EVGO) Stack Up Against its Peers?

While EVGO has an overall D rating, one might want to consider looking at its industry peers, Finning International Inc. (FINGF) and Sumitomo Electric Industries, Ltd. (SMTOY), having an overall A (Strong Buy) grade.

EVGO shares were trading at $8.67 per share on Wednesday afternoon, down $0.08 (-0.91%). Year-to-date, EVGO has declined -19.05%, versus a 17.39% 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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