In the last few months, Switchback Energy Acquisition (NYSE:SBE) stock has been in a relatively tight range. On the upside, the stock has faced resistance around $44 to $46. However, on each correction, SBE stock has found strong support around $35 and has sharply reversed higher.
I am of the view that the stock is likely to break-out on the upside. Let’s discuss the reasons to be bullish on this special purpose acquisition company (SPAC), which has entered into a merger agreement with ChargePoint.
In the recent past, I have discussed long-term investment themes with fellow analysts and investors. They’re unanimous that the electric vehicle industry will grow over the next decade.
For investors bullish on the EV growth story, SBE stock is a must-have. ChargePoint is an EV charging network company. If the adoption of EVs is going to increase, the charging network infrastructure has to be robust. And ChargePoint is well-positioned to deliver growth in the coming decade.
ChargePoint May Dominate Long Term
The number of charging ports shipped by the company has been increasing steadily. For FY2017, ChargePoint shipped 17,640 charging ports. Last year, the company’s shipment increased to 31,623. In-line with accelerating growth for the EV industry, the company expects shipment of 425,060 charging ports by FY2026.
These are realistic estimates considering that 30 million charging points are likely to be installed in this decade. By FY2030, there will be 8.6 million EV charging outlets installed in Europe and 10.8 million in North America.
Furthermore, the company’s revenue for FY2020 was $135 million. Revenue is expected to touch $2 billion by FY2026. Therefore, over the next five years, revenue growth is likely at a CAGR of 60%.
The company’s forecast is with a focus on North America and Europe. ChargePoint already has a leading market share in North America. I will not be surprised if the company pursues further regional diversification in the next few years. This can help in sustaining strong growth. It’s also worth noting that the company expects gross margin to improve on a sustained basis.
Another positive is that the company offers hardware as well as software solutions. The software solution provides for recurring revenue. As the company expands its presence, growth in recurring revenue will ensure clear cash flow visibility.
Strategic acquisition is another growth strategy that will be pursued by ChargePoint. The listing and cash infusion increases the company’s financial flexibility. Pro-forma, ChargePoint is likely to have zero debt and a cash position of $650 million. It’s also worth noting that existing investors include Daimler (OTCMKTS:DDAIF), BMW and Siemens (OTCMKTS:SIEGY). The company therefore has a strong financial backing to pursue aggressive growth.
Concluding Views on SBE Stock
SBE stock was trading near $10 in September 2020. The business combination announcement has sent the stock soaring to around $40 today. Even with the big upside, SBE stock has remained resilient at higher levels.
Considering the business outlook, I believe that a break-out on the upside is likely. ChargePoint has a robust business model and recurring revenues will increase in the next few years. Expanding EBITDA margin will also boost cash flows.
Further, the electric vehicle space is overcrowded. By FY2022, there will be over 500 different EV models available globally. However, the same does not hold true for companies providing charging point hardware and software. With limited competition, the company has ample headroom for growth.
Considering these factors, I am bullish on SBE stock. I will not be surprised if the stock doubles from current levels in the next 24 months.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored more than 1,500 stock specific articles with focus on the technology, energy and commodities sector.