Chargepoint’s Stock Could Benefit from High Energy Prices

Chargepoint Opening Points:

-Revenue increased by 102% Y-o-Y.

-Network charging revenue grew by 122% and subscription revenue grew by 63%.

-Chargepoint has over 188,000 total charging stations across North America and Europe.

Chargepoint NYSE: CHPT is an American electric infrastructure company based out of Campbell, California. It operates the largest network of independently owned charging networks and has a presence in 14 countries. Energy prices are on the rise again, and EV (electric vehicles) companies continue to benefit from the trend as people seek alternatives to gasoline. Analysts estimate that EVs could be anywhere from 3 to 6 times cheaper than gasoline-powered cars. Chargepoint provides a range of EV solutions, from public charging points to home solutions. It also offers subscription services along with charging stations. As macro headwinds mainly energy prices continue to rise the company is likely to benefit as higher energy prices push people towards electric vehicles.

Tailwinds that support electric vehicles:

Macroeconomic headwinds are weighing on gasoline-powered cars.

EV sales are expected to grow at 75%-80% in 2022, with the first quarter of 2022 witnessing 75% growth year-on-year. Gasoline prices are expected to remain high and the increasing cost of a gallon or liter in both North America and Europe has meant consumers are seeking out alternatives. Additionally, global macro factors continue to push up oil prices, with Europe recently cutting its Russian oil imports, and oil producers unwilling to increase supply, analysts increasingly expect oil prices to remain higher for longer, as supply continues to be tight relative to demand. In fact, some analysts have predicted that oil may be headed to $140-150 per barrel in the near term.

Car companies continue to roll out EV models.

Historically, Tesla has been the main producer of electric vehicles. But now more and more competitors are offering alternatives to Tesla. Consumers are increasingly considering EVs as newer models offer both a reasonable range and competitive pricing, helping push the market away from gasoline powdered vehicles toward EVs. Furthermore, the overall EV industry is expected to grow by around 25-30% over the next 8 years. This provides plenty of opportunities for EV charging companies, and subsequently Chargepoint.

A quick overview of Chargepoint’s financials:

Chargepoint’s revenue increased by over 102% year-on-year for the quarter. Meanwhile, total revenue is expected to come in at $500 million during FY23. Chargepoint’s gross margins came in at 20% during the quarter, with network charging primarily affecting the low margins. This would indicate that the company lacks pricing power, and is likely to rely on volume in the long term.

Furthermore, operating losses continued to be high, coming in at $89 million for the quarter. Although Chargepoint is well capitalized with total cash on hand at $540 million, investors will be worried that the company may need to find ways to raise cash in the near future. The company’s balance sheet remains strong with a current ratio of 3.5 and a debt to equity of 0.05. Although the company continues to post losses, on a positive note, Chargepoint is expected to become cash-flow positive in the fourth quarter, which should help stabilize the stock.

Should investors consider investing in Chargepoint?

Chargepoint’s stock is currently down over 57%, and the stock may be bottoming out. Chargepoint continues to see mostly a buy rating from analysts, with the average analyst’s price target of $19.9, which would indicate around a 20% upside from current levels. Regardless, the stock currently trades at a forward P/S of 10, which may make investors think twice about the stock. Beyond the lofty valuations, the broader EV industry continues to grow at a rapid pace, and this is likely to be exacerbated by energy and oil prices. Therefore, should the company execute on costs and get to profitability over the next couple of years it may be able to justify valuations. But, competitors such as Blink and EVgo could continue to affect the lack of profitability, as each of these companies looks to gain market share, thereby keeping charging prices lower than Chargepoint might prefer. While this is great for consumers, investors may not like the pricing war.

Risks:

Multiple risks remain for investors and Chargepoint’s stock. The global economy is slowing and rising interest rates may weigh on consumer demand for automobiles. This could dampen demand for EV vehicles and charging stations. Therefore, the stock could further retreat from its current levels as investors reassess the stock’s future.