The Government Is Pouring Billions Into This Sector

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The Federal Reserve doesn’t look like it’ll bail out the stock market anytime soon. However, the U.S. government is bailing out the electric vehicle (EV) sector with its multibillion-dollar Inflation Reduction Act. 

In fact, EV-related stocks have done fairly well despite the market meltdown over the last month. 

One subsector of the EV market that investors have been paying attention to is EV chargers. Financial pros’ second-most searched stock in the space over the last month has been ChargePoint (CHPT). While Tesla (TSLA) is number one, it’s not a pure play on EV charging, nor does it generate most of its revenues from charging. 

Below, we take a deep dive into ChargePoint and lay out our recommendation on the stock.   

ChargePoint Holdings’ Business

ChargePoint (CHPT) is the world’s largest and most open EV charging network, with more than 200,000 charging locations. The firm makes advanced hardware and cloud-based software. It offers its services to businesses, fleets, and drivers. 

A driver connects to a ChargePoint station every seven seconds by initiating over 7 million charging sessions. Furthermore, ChargePoint drivers have saved over 6.4 million gallons of gasoline and driven over 158 million gas-free miles. 

The company offers Assure, a range of extended parts and labor warranty solutions. It also offers ChargePoint as a Service (CPaaS), which bundles the use of its owned-and-operated systems with cloud services, Assure, and other benefits into one subscription. 

The firm breaks down its revenues by network charging stations, subscriptions, and “other.” 

President Biden appointed the firm’s CEO to his National Infrastructure Advisory Council in August. 

This month, ChargePoint and Charge Across Town partnered with the California Energy Commission to build hundreds of EV chargers at apartment buildings and condo complexes across the state. 

Financials

From 2018 to 2021, CHPT more than doubled its revenues from $92 million to $241 million. 

 Last quarter, it reported revenue growth of 93% year over year as the company posted its first $100 million quarter. The firm guided to third-quarter fiscal year 2023 revenue of $125–$135 million and confirmed full-year revenue guidance of $450–$500 million. 

The Inflation Reduction Act has a federal tax credit on charging equipment, which should bode well for ChargePoint’s business. Moreover, the law allocates $3 billion for electrifying the U.S. Postal Service fleet, including vehicles and charging stations. Subsidies should help CHPT as it moves closer to profitability. 

The firm has a negative operating cash flow of –$229.65 million.

However, it has $471 million total cash and $320 million total debt. 

Plus, the company has plenty of liquid capital to finance its short-term liabilities, with a current ratio of 2.8x. 

Valuation

CHPT is not a profitable company yet and has no price-to-earnings (P/E) GAAP ratio. However, that’s true for most of its competitors as well. For example, EVgo(EVGO), Volta (VLTA), and Blink Charging (BLNK) are unprofitable. Tesla (TSLA) is the only stock in the space that is. It’s not a pure play on EV charging. But with 35,000 superchargers, TSLA owns and operates the world’s largest fast-charging network. 

CHPT trades at a price-to-sales ratio of 15.7x, notably better than EVGO’s 19.6x and BLNK’s 23.1x but not as strong as TSLA’s 13.1x or VLTA’s 5x. 

While CHPT doesn’t look good from a valuation perspective, neither do its competitors. 

Profitability

CHPT operates at a gross profit margin of 19%, which is far smaller than its competitors. For example, EVGO is at 31.8%, VLTA is at 23%, and BLNK is at 21.6%. TSLA is a significantly larger company and operates at a gross profit margin of 27.1%. 

CHPT has a dismal return on equity of –67.2%. Meanwhile, EVGO is at –-19.8%, BLNK is at –27.3%, VLTA is at –234%, and TSLA is at 29.8%. 

The net income margin for CHPT is ugly at –93%. But it’s not as bad as BLNK at –202% or VLTA, which is N/A. 

Only TSLA has positive cash flow from operations. CHPT is negative at –$229 million, EVGO is at –$66.6 million, VLTA is at –$121 million, and BLNK is at –$50.5 million. 

Growth

CHPT has grown revenues by 90% year over year, which is amazing. However, it’s not uncommon in the space. For example, EVGO is at 80% revenue growth, VLTA is at 78%, BLNK is at 258%, and TSLA is at 60.4%. 

Government subsidies and automakers pushing to produce more EVs in the coming years should continue to propel growth in the space. 

Our Opinion 5/10

CHPT is a growth company with several good things working in its favor,especially, the Inflation Reduction Act and the push from automakers to produce more EVs in the coming years. 

However, current market conditions are awful for unprofitable stocks. 

Investors who want exposure to EV charging can select TSLA, which isn’t a pure play, but is a name they’re familiar with. 

We believe CHPT could make for a good buy in the future, but it’s currently overvalued. We’d wait for a more significant dip in its price.