ChargePoint Holdings (NYSE:CHPT) has had a rough go of things, even before its reverse merger. Year-to-date, CHPT stock is down $18.70 from $40.08 at the end of 2020, a drop of almost 47% to $21.38 as of April 19.
Moreover, since its reverse merger with a SPAC (special purpose acquisition purpose) closed on March 1, the stock is down 29% from $30.11. Not exactly a great start for a newly public company trying to take the EV charging world by storm.
The good news is that the stock is probably going through a temporary dip. One of the biggest fears in the markets right now is that the chip shortage will affect future sales. Several large auto manufacturers have had to stop production, including some EV manufacturers. The fear is that EV charging companies won’t be able to keep on producing their charging stations at the same pace.
However, one area of good news is that the Biden Administration wants to help install $15 billion worth of charging stations throughout the U.S.
Sales Forecasts and Valuation
So far, ChargePoint is doing a good job of keeping on track with its sales forecasts as given in its original SPAC presentation.
ChargePoint’s actual revenue for 2020 came in at $146.5 million well above its forecast (see page 31 of slide deck) of $135 million for the year.
Moreover, the presentation originally forecast $198 million this year and $346 million in revenue next year. But in its latest March 11 earnings release for Q4 2020, ChargePoint indicated that its 2021 revenue (ending Jan. 2022) would be in the range of $195 million to $205 million. It will be interesting to see if they keep that projection for its Q1 earnings (Q1 ending April 30). However, those numbers won’t be out until early to mid-June.
As it stands, the valuation for CHPT stock has fallen to a reasonable level. For example, based on shares outstanding, the stock has a $6.51 billion market capitalization. This represents about 32.6 times its 2021 revenue and only 18.8 times forecast 2022 revenue. The out years are even cheaper if the company meets or beats its marks as they originally forecast in the slide deck (page 31).
And there is good reason to bet on that happening: ChargePoint believes its sales trajectory will follow the natural upward swing of higher electric vehicles (EV) in the market over time.
As shown on pages 11 and 27 of the slide deck, ChargePoint believes that the number of EV ports and its revenue will scale directly with the penetration of EVs in the market. For example, by 2026 the company expects that EVs will be 10% of the auto market by then. That will require a large number of EV charging ports.
What To Do With CHPT Stock
In my last article on CHPT stock I derived a valuation of between $27.40 per share and $58.04 using a 15% discount rate and an 8 times revenue multiple. This works to an average price target of $42.72. This is 99.8% above today’s price.
However, keep in mind that this valuation depends on the forecast for 2026 revenue. It may take several years before it becomes apparent that the company can reach its 2026 revenue targets. Therefore, the $42.72 price target should be seen as a multi-year price target.
For example, if it takes 3 years for CHPT stock to reach this level, the ROI will represent 25.9% annually. This is still a very good return for most investors. And don’t forget that as the company’s revenue and earnings come in and meet or exceed its original targets the ROI will change.
But this 25.9% expected ROI today represents a good baseline for investors to consider making an investment in CHPT stock. So far, there are no major analysts covering the stock, but I expect that will change soon. Watch the company’s progress, especially with its upcoming earnings to see that change.
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.
