With Few Headwinds, Switchback Energy Stock Is a Bet on the Right Horse

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By now you’re probably familiar with one of the latest SPAC initial public offerings (IPOs) to entice investors. In this case Switchback Energy Acquisition (NYSE:SBE) is merging with ChargePoint in a $2.4 billion deal. When the merger is final, the new company will be known as ChargePoint Holdings. So is now a time to jump in on SBE stock?

electric vehicles charging at a charging station

Source: Scharfsinn / Shutterstock.com

I’ve been skeptical about many of the SPAC IPOs that have been announced this year. Maslow’s hammer, colloquially phrased as “if all you have is a hammer, everything looks like a nail,” comes to mind. But the merger of SBE with ChargePoint is one that I can get amped about (pun intended).

Which came first the chicken or the egg? Don’t put the cart before the horse. There are any number of clichés and idioms we can use to describe the link between electric vehicles and the infrastructure to power them.

But with ChargePoint’s focus on building out the EV infrastructure, it looks like SBE is betting on the right horse.

Electric Vehicle Sales and SBE Stock

The reason for my enthusiasm is that the merger addresses a key issue for ensuring the growth of the electric vehicle (EV) market is sustainable. Let’s be clear, demand for EVs is no longer a theoretical idea. According to Bloomberg, from 2015 to 2019 EV passenger sales climbed from 450,000 to 2.1 million.

As you would guess with all the attention being paid to stocks of any company that has anything to do with electric vehicles, this trend will only accelerate in future years. In fact, by 2025, the market is expected to reach 8.5 million. As a percentage of sales, EV will represent about 10% of the market, up from about 2.5% today.

One catalyst for this surge in EV sales is the development of an electric charging infrastructure. And that’s where Switchback Energy comes in.

Fill ‘er Up Takes on a New Meaning

In a recent article, Louis Navellier cited that Switchback has over 4,000 customers that operate over 115,000 public and private charging stations. Through its network roaming integrations, the company offers an additional 133,000 public charging stations in North America and Europe.

That’s impressive. However, if there’s going to be an exponential growth in electric vehicles, there will have to be corresponding growth in charging stations.

If all goes according to plan ChargePoint hardware will be more ubiquitous than your local gas station. Imagine if there was something like a parking meter except for recharging. Instead of charging for the energy used, ChargePoint collects a monthly fee from their customers who, in turn, are responsible for providing the electricity and how to recoup that cost.

And the beauty of the plan for investors is that the fee creates a recurring revenue stream for the company.

What Could Go Wrong?

The simple answer is that the EV market will not grow as expected. There is a growing sentiment that 2021 is going to be a strong year for the economy no matter which candidate wins the White House.

One reason for that is it seems almost certain there will be more stimulus. Right now, we’re just debating when and how many zeroes.

But by definition the need for stimulus means all is not well with the economy. That could put a crimp in the near-term growth forecast for EVs. Or it could halt demand for building an infrastructure. Or it could be a little of both.

SBE Stock Is a Buy, but Be Patient

Slower growth doesn’t change the overall EV narrative. It just changes the when. And that’s not a good enough reason to stay away from SBE stock. The stock is trading at just above $15 per share right now, and it’s likely that the stock will break past its all-time high set earlier this year.

The desire to have an electric vehicle doesn’t remove the wanderlust that exists in many Americans. We are a nation that wants to hit the road. And that has been a fundamental stumbling block for widespread, nationwide adoption of electric vehicles.

Through this merger, ChargePoint will be firmly entrenched as a leader in producing the technology needed to build out this infrastructure.

And when that happens, one of the primary obstacles for widespread EV adoption will be removed. The opportunity in SBE stock is still measured in years, but it’s a story worth buying into.

On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.


Article printed from InvestorPlace Media, https://investorplace.com/2020/10/sbe-stock-bet-on-right-horse/.

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