Despite issuing an outlook for higher revenue in 2021, ChargePoint (NYSE:CHPT) stock is falling in after-market trading. However, after falling sharply, it appears that ChargePoint may eke out a higher opening when markets open.
Of the many companies that went public via a special purpose acquisition company (SPAC), I felt that ChargePoint was one of the most intriguing. But my intrigue was not because I was expecting the company to become a millionaire stock.
The $5 Trillion Market Is Not Here Yet
According to Wedbush Securities analyst Dan Ives, the EV sector may be a $5 trillion opportunity. But the race towards an electric vehicle (EV) future is about the chicken or the egg, or more simply supply and demand. The United States (and broadly speaking the world) needs an EV charging infrastructure. But the infrastructure needs to have vehicles readily available to drive demand.
And that’s where I have to pump the brakes on ChargePoint. For the company to become profitable it’s going to need the addressable market for electric vehicles to increase significantly. A report from Edmunds forecasts that EVs will make up 2.5% of total automobile sales in 2021. That’s not insignificant, but it’s also not nearly enough.
And here’s where my chicken and egg comment comes in. One of the leading reasons that consumers are hesitant to buy an EV is the (real or perceived) lack of an available charging infrastructure. This is particularly true if EV’s are going to have mass appeal to middle- and lower-income consumers.
Some people may roll their eyes at that statement and think that the mass rollout of EVs is awhile away. However, with some automakers pledging to go to all-electric fleets within the next 10 to 20 years, it’s not as far away as one might think.
The takeaway is this, ChargePoint will have to build the infrastructure long before there is ample demand.
And it seems like investors are lukewarm on the stock as well. Even before the company reported earnings on March 11, ChargePoint was just a smidge above its opening price when it began trading publicly under the CHPT ticker.
Earnings Didn’t Help
Normally I would tell you to put very little stock into an earnings report for a company that just went public two weeks ago. But, ChargePoint is a little different. For starters, the air is starting to come out of the EV bubble. One of ChargePoint’s primary competitors, Blink Charging (NASDAQ:BLNK) is also down substantially in the last month.
And second, most investors understand that ChargePoint won’t be profitable for several years. And the company is doing what it should be doing, investing in its business.
Still, the earnings report was not strong. The company reported an adjusted loss of $33.6 million. That was up slightly from the $32.5 million it posted a year ago. Revenue was also down 2% year-over-year (YOY) to $42.4 million. However for the full year, both the adjusted loss ($117.8) million and the revenue $146.5 million were higher YOY.
However for ChargePoint this report was all about the guidance. The company has been bullish about its future revenue growth. And the company confirmed its initial guidance suggesting that fiscal year 2022 will deliver higher revenue.
Skepticism about the company’s future guidance may have been a contributing factor to CHPT’s lukewarm debut. If investors begin to have more confidence in the forward guidance, it may be a catalyst that moves the stock forward.
ChargePoint Looks Like a Buy, But Maybe a Bit Later
In the company’s S-1 document, there is a likelihood that 9 million shares will be issued as part of an Earnout Trigger Event. That may cause some dilution in the stock. And that’s why buying ChargePoint at this point should be considered a highly speculative investment.
However, by the second half of the year, investors should have another peek at earnings and a better sense of whether the company will be able to hit its FY22 revenue target. In the meantime, if you absolutely need to jump in, look for a price below $30.
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