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Why the ChargePoint Pullback Could Continue

President Biden’s proposed $2 trillion infrastructure plan was just what ChargePoint (NYSE:CHPT) needed. CHPT stock saw an awesome rally on this news. And, with $174 billion of the bill proposed for electric vehicles (including charging stations), it’s not a surprise that investors took the news and ran with it.

CHPT stock
Source: YuniqueB / Shutterstock.com

Yet, after rallying from around $20 per share on Mar. 25, to above $31 per share on Apr. 6, shares have since seen a major pullback. Why such a short-lived rally? It may have been due to traders in this stock taking a quick profit. Or, perhaps it was due to uncertainty over whether the bill gets passed in its original form. With even members of Biden’s party (the Democrats) kicking the tires, it’s far from being a done deal.

So, does that mean the opportunity with ChargePoint has come and gone? Sure, more positive news could renew interest in the stock. But, giving things a second look, it’s hard to see a good reason to buy in at today’s prices.

“EV Mania” is fading fast. As such, this charging play will now move up (or down) on its own merits. Yet, even with Biden’s infrastructure bill, it’s anything with a slam dunk. Coupled with other concerns, there may be more in play to send shares lower from here.

CHPT Stock and Its Short-Lived Infrastructure Rally

There’s no question the aforementioned infrastructure bill bodes well for ChargePoint. And, not just due to the money earmarked to subsidy charging stations. As InvestorPlace’s Larry Ramer wrote Apr 7, Wedbush analyst Dan Ives has made the case how the EV tax credit increases in the bill could indirectly benefit the company as well. With more incentives will come an even faster acceleration in EV ownership. And, with that, a further speed-up in demand for charging stations.

So, if this tentative spending bill is such a game-changer, why has CHPT stock given up its gains from the recent infrastructure rally? Since the “blue wave” election results, investors have anticipated a major push from the federal government for electrification. Although this and other EV plays have sold off from their past highs, this factor is still priced into shares, even before the infrastructure announcement.

Now back to square one, will ChargePoint stay put? Before, I saw the specter of big government investment in EVs as something that could prevent additional moves lower for this stock. But, reassessing the situation, this may not be enough to counter other concerns.

And, not just obvious ones, such as this stock’s rich valuation. With other factors that could result in this company falling short of expectations, shares may have further to fall from here.

Plenty of Risks to Consider

The fact ChargePoint trades at a premium, even based on its fiscal year 2027 (year ending January 2027) results, isn’t the only reason for concern with this stock. There are several other factors that do damage to the bull case. One that’s been long standing is the risk of competition. As many rivals, ranging from other pure-play EV charging companies, to major automakers, enter this space, it may be tough for the company to generate the high margins seen in its future financial projections.

But, this is assuming that EVs will be charged in public locations once they reach mass adoption. Home charging is the preferred method among the current pool of EV owners. It’s easy to see this remain the case when there’s an EV in every driveway.

To top of this all, who’s to say that tomorrow’s EVs will need the frequency of charging we see today? Companies like Quantumscape (NYSE:QS) are betting big that solid-state batteries will be the main EV power source. With longer ranges than today’s standard lithium-ion batteries, public charging demand could be much lower than anticipated.

So far, investors have chosen to ignore these negatives, and focus only on the positive headlines. But, as these concerns become more top of mind, it may put more downward pressure on CHPT stock.

Bottom Line: Look to Other Plays for EV Exposure

If the much-touted infrastructure bill passes, it could mean a big push in the right direction for EV charging companies. But, given ChargePoint’s current valuation (even after the pullback), this positive already looks to be priced into shares.

But, valuation is not the only issue here. Competition could result in underwhelming results. So could EV owner preferences for home charging, along with possible battery technology improvements. With so much that could make public charging less profitable than anticipated, it’s getting harder to see the appeal of buying in at $23.89 per share.

So, what’s the best course of action? If you want EV exposure, instead of buying CHPT stock, consider opportunities with greater potential to gain in the near-term.

On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.

Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.


Article printed from InvestorPlace Media, https://investorplace.com/2021/04/chpt-stock-why-the-pullback-could-continue/.

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