ChargePoint Holdings (NYSE:CHPT) has not done that well since it closed its SPAC (special purpose acquisition corp) merger with Switchback Energy on March 1. Since then, CHPT stock has fallen 13.9% to a close of $25.91 as of March 15. The stock is down over 35% since the beginning of the year when it was trading as an unmerged SPAC.
It’s almost like a case of “buy the rumor, sell on the news.” The news, in this case, would be the closing of the SPAC merger with ChargePoint, the electric vehicle charging company. But I think it is still worth considerably more, at least based on its own projections.
So far, those projections have been met.
Earnings Forecasts
On March 11, ChargePoint reported strong fourth-quarter and 2020 earnings (FY 2021 ending Jan. 31). The company had forecast its 2020 revenue would be $135 million (see page 31 of its SPAC presentation). ChargePoint’s actual revenue came in well above that, at $146 million.
Moreover, the company put forth guidance for 2021 that was essentially in line with the previous presentation. For example, their pre-merger presentation said that 2021 sales would rise 46% to $198 million. But in the company’s latest earnings release the guidance for 2021 is for $195 million to $205 million. The midpoint of $200 million for 2021 is slightly better than its prior $198 million forecast.
The truth is that the spike or hockey-stick point in revenue growth should occur within several years as electric vehicle adoption takes hold. ChargePoint says that its growth will be “directly proportional to EV penetration.”
ChargePoint expects massive growth in revenue from its charging stations in its near future. This “hockey stick” growth can be clearly seen on Page 11 of the ChargePoint slide presentation.
It shows that ChargePoint’s stations will scale up very quickly over the next six years to 2026. It will clearly follow the pattern of EV adoption by the driving public. For example, some estimate that by the year 2035, over half of all car sales will be EVs.
ChargePoint’s Valuation
In past articles on Switchback Energy, I valued ChargePoint two different ways. I used an 8 times enterprise-value-to-sales ratio (taken from its peers), but adjusted it for the time value of money.
Now that CHPT stock closed Monday at just $25.91 and it has 295.8 million shares outstanding (slightly less than in its presentation), its market capitalization is $7.664 billion. And as the company reported that its cash balance was $615 million, the enterprise valuation is $7.049 billion.
That implies that its EV-to-sales ratio for 2026 (where estimates are for $2.069 billion in sales) is just 3.4 times. That is very cheap, but it has to be discounted for the time value of money and other risks. Using a 15% discount rate the adjusted revenue is $894 million. This gives it a 7.9 times multiple.
Using an 8.4 times multiple (using a 4% premium due to its higher margins) gives CHPT a valuation of $8.1 billion, after adding back the cash. This works out to $27.40 per share, or 5.7% higher than today’s price.
However, using an 8 multiple against its 2026 revenue works out to a market cap of $17.167 billion market cap, or $58.04 per share. The average of these two valuations, $27.40 and $58.04, is $42.72. That represents a potential gain in CHPT stock or 65% higher than today.
What To Do With CHPT Stock
ChargePoint is likely to do well over the next several years as more and more people buy electric vehicles. They are highly likely to use ChargePoint’s charging stations as the company has one of the largest charging systems in the country. ChargePoint’s stations will scale up very quickly over the next six years to 2026. It will clearly follow the pattern of EV adoption by the driving public.
As a result, the company’s predictions for huge revenue growth over the next six years are not unreasonable. My valuation for the stock at $42.72, or 65% higher, is an average of an adjusted and unadjusted revenue forecast for the company. This allows the investor to gain the advantage of having a mix of a risk-adjusted and un-risk adjusted valuation.
The stock has taken a tumble since its SPAC closing. But it is worth significantly more, as my valuation shows. Over the coming years, as the company’s revenue begins to reach an inflection point in growth spikes, CHPT stock is likely to rise at least 65%. Even if it takes three years for this to happen, the average compound return is 18.1% annually. That is a great return for most investors.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
