Somebody forgot to tell ChargePoint Holdings, Inc. (NYSE: CHPT) that the market is exiting bear market territory. On Friday, June 2, CHPT stock is down over 5% in late-day trading. This has taken the shine off a week that started with the stock popping over 15% due to a bullish upgrade from Bank of America (NYSE: BAC) that the company received two days before the earnings report.
In the note to go along with the higher rating, BofA analyst Alex Vrabel set a 12-month price target of $14 for CHPT stock. Vrabel cited his belief that the company is proving it can execute at a high level. He also expects that it will benefit from industry and regulatory tailwinds.
And perhaps, more importantly, he saw the company showing a path where it will break even in terms of cash flow. That would make it less dependent on raising funding from outside sources.
As for the earnings report itself, ChargePoint beat on the top and bottom lines. However, the company lowered its revenue guidance for the coming quarter. That was enough to sour investors.
Competition is Growing and Time May Not be on ChargePoint’s Side
One of the most compelling reasons to consider ChargePoint stock is that it helps to overcome range anxiety. This continues to be one of the primary obstacles to mass EV adoption. The bulk of the company’s revenue comes from a network of charging stations. These charging stations are designed for fleet charging, commercial locations (restaurants, offices, airports, etc.), and private homes and apartments. The company does business in Europe, but the bulk of its revenue comes from the United States.
The vast majority of the company’s products are alternating current (AC) chargers. These are the slower charging ports as opposed to the fast-charging direct current (DC) ports. ChargePoint has approximately 37% market share of the AC charging market. Tesla, Inc. (NASDAQ: TSLA), by contrast, has approximately 60% of the DC charging market.
The concern is that the competition in this sector is growing. And over time, charging systems will evolve and there are questions as to whether ChargePoint can keep up.
An Asset-Light Model but at What Cost?
ChargePoint has an asset-light model in this sense. It provides hardware to its customers. This hardware is connected with a cloud-based software solution. All of this is sold as a package in a sofware-as-a-service (SaaS) model. But as mentioned above, the bulk of the company’s revenue comes from the one-time sale of the charging infrastructure with a smaller portion of revenue coming from subscriptions.
The larger problem is that the company’s operating expenses make up approximately 90% of its revenue. In fairness the company has been improving its margins, but will that accelerate to the scale required to feel comfortable about achieving profitability sometime in 2024. That’s a question for investors to decide.
Is CHPT Stock a Buy?
ChargePoint is not profitable and it won’t be until the end of 2024 at best. For that to happen, a lot of things will have to break right, including increased demand for electric vehicles. And for that to happen, the economy – and specifically credit conditions – will have to improve.
Auto makers are spending billions of dollars to manufacture electric vehicles. That means they’re coming regardless of consumer preference. And there will have to be hundreds of thousands of additional charging stations to support that supply.
That gives ChargePoint a path that could pay off well for shareholders. But as long as EVs remain a nice-to-have and not a must-have, then CHPT stock looks like a nice-to-have stock only for risk-tolerant investors.