Electric Vehicle (EV) charging company ChargePoint Holdings, Inc. (CHPT) missed its own revenue guidance in the last reported quarter and expects slower revenue growth in the first quarter of fiscal 2024. Also, the company reported a wider-than-expected quarterly loss. Since its inception, CHPT has incurred significant losses and will continue to be a poor performer.
In this article, I have discussed several reasons why investing in this stock could be extremely risky.
Investors have been bearish about CHPT due to its deteriorating financials, declining market share, premium valuation, and low profitability. The stock is expected to plunge further as it grapples with macro challenges, including high inflation and supply chain disruptions.
CHPT reported revenue of $152.80 million for the fourth quarter (ended January 31, 2023), up 93% year-over-year.
“ChargePoint delivered its largest sequential revenue growth to date and another record quarter, although below our guidance range as supply challenges for our DC solutions and quarter end shipment challenges at this growth rate persisted,” said Pasquale Romano, CHPT’s President and CEO.
Furthermore, the company reported a fourth-quarter loss of $78 million, or $0.23 per share, compared to a loss of $60.10 million, or $0.23 a share, in the prior-year quarter. The consensus estimate called for a loss of $19 per share on revenue of $165 million.
For the first quarter of fiscal 2024, CHPT guided revenue between $122 million and $132 million. The company’s underwhelming financial performance in the fiscal 2023 fourth quarter and disappointing outlook led to several analysts downgrading the stock. JPMorgan Chase & Co. analyst Bill Peterson lowered the stock’s price target from $16 to $15 per share.
In addition, D.A. Davidson cut the price objective on shares of CHPT from $20 to $18. Oppenheimer also trimmed their price target on the stock from $40 to $26.
Shares of CHPT have declined 35.9% over the past six months and 46.6% over the past year to close the last trading session at $9.84. The stock is currently trading 53.1% below its 52-week high of $20.99, which it hit on April 4, 2022.
Here are the factors that could affect CHPT’s performance in the upcoming months:
Deteriorating Financials
CHPT’s total operating expenses increased 15.1% year-over-year to $111.30 million in the fourth quarter of fiscal 2023. The company’s loss from operations stood at $78.31 million for the quarter. Its net loss before income taxes worsened by 24.3% from the year-ago value to $78.13 million.
Furthermore, the company’s net loss widened 29.7% year-over-year to $78.01 million, while its net loss per share came in at $0.23. Also, as of January 31, 2023, its total liabilities stood at $724.32 million, compared to $308.88 million as of January 31, 2022.
Unfavorable Analyst Estimates
Analysts expect CHPT’s revenue for the first quarter (ending April 2023) to come in at $128.67 million, indicating an increase of 57.6% year-over-year. However, the company is expected to report a loss per share of $0.16 for the same period. Furthermore, analysts expect CHPT to incur significant losses for at least the next two fiscal years.
Elevated Valuation
In terms of forward EV/Sales, the stock is trading at 4.79x, which is 192% higher than the 1.64x industry average. Also, its forward Price/Sales multiple of 4.87x is 269.3% higher than the 1.32x industry average. Likewise, the stock’s 2.52x forward Price/Book is 5.2% higher than the 2.39x industry average.
Low Profitability
CHPT’s trailing-12-month gross profit margin of 18.41% is 37.1% lower than the industry average of 29.29%. Also, the stock’s trailing-12-month EBITDA margin and net income margin of negative 66.71% and negative 73.59% compare to the industry averages of 13.34% and 6.54%, respectively.
Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of negative 76.32%, 33.77%, and 31.90% are significantly lower than the industry averages of 13.84%, 7.01%, and 5.23%, respectively.
POWR Ratings Reflect Bleak Prospects
CHPT has an overall F rating, translating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CHPT has an F grade for Value, in sync with its higher-than-industry valuation. Also, it has an F grade for Stability. The stock’s 24-month beta of 1.80 justifies the Stability grade.
In addition, the stock has a D grade for Quality, consistent with lower profitability relative to its peers.
CHPT is ranked #79 out of 89 stocks in the Industrial-Equipment industry.
Beyond what I have stated above, we have also given CHPT grades for Sentiment, Growth, and Momentum. Get all CHPT ratings here.
Bottom Line
CHPT reported disappointing results for the fourth quarter and fiscal year 2023. Furthermore, analysts are bearish about the company’s prospects as it suffers from high inflation, stiff competition, and supply chain challenges. The stock is currently trading below its 50-day and 200-day moving averages of $11.19 and $13, respectively, indicating a downtrend.
Given CHPT’s weak financials, bleak growth prospects, low profitability, and stretched valuation, this stock is best avoided now.
Stocks to Consider Instead of ChargePoint Holdings, Inc. (CHPT)
The odds of CHPT outperforming in the weeks and months ahead are significantly compromised. However, there are many industry peers with impressive POWR Ratings. So, consider these three stocks rated an A (Strong Buy) or a B (Buy) from the Industrial-Equipment industry instead:
nVent Electric plc (NVT)
LSI Industries Inc. (LYTS)
Vertiv Holdings Co (VRT)
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CHPT shares were trading at $10.41 per share on Thursday morning, up $0.57 (+5.79%). Year-to-date, CHPT has gained 9.23%, versus a 4.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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