I remain bullish on the near-term, medium-term, and long-term outlook of ChargePoint (NYSE:CHPT) stock for several simple reasons.
I believe that many investors, analysts and pundits are underestimating the chances that the infrastructure bill currently being considered will pass.
I also think that the Street is underestimating the odds of a somewhat trimmed-down progressive budget passing.
Moreover, I continue to believe that ChargePoint’s first-mover advantage and the proliferation of electric vehicles make CHPT stock worth buying for long-term investors.
Many people often do not understand what’s really happening in Congress. They believe Congress members are always honest about their motivations and that political ideology tops every other concern for members.
In my view, politicians are not always honest. Other motivations, especially the need to raise campaign cash and win elections, drives them more often than ideology.
So in the current debate within the Democratic Party between progressives and moderates over the infrastructure bill and the budget, I do not believe that ideology is the main motivating factor.
Rather, both factions, in order to win financial and electoral support from their core constituencies, want to be portrayed as fighting for certain causes.
Because the two sides want to pass both bills in order to be able to point to accomplishments and please their constituents, I am sure that they will do so.
The $3.5 trillion budget will, however, likely be trimmed by around 15%-20% so that the moderates can save face and claim victory to some extent.
The Legislation Should Boost CHPT Stock
For CHPT stock, both the infrastructure bill and the budget are likely to be positive game-changers.
According to Microsmallcap.com, the infrastructure plan includes $85 billion in EV charging infrastructure funding. Meanwhile, 29 House Democrats are looking to incorporate $160 billion of spending, including for EVs themselves in the budget.
Some have argued recently that ChargePoint’s shares won’t get a meaningful lift from the passing of the infrastructure bill and the budget. Yet recent history seems to tell a very different story.
Specifically, as the infrastructure bill and the budget framework made their way through the Senate toward the beginning of August, ChargePoint’s shares climbed around 15%, rising from just over $23 to slightly above $26.
Amid subsequent skepticism about the chances of both legislation passing, the stock has fallen below $22. But since the shares rallied as the infrastructure bill and the budget framework moved through the Senate I expect the shares to rally even more meaningfully if the two bills are passed by both houses of Congress.
Over the medium-term and long-term, as the growth of EVs accelerates in the U.S. and Europe, the company’s results should be boosted by direct government funding for its chargers and by much higher demand for its chargers from drivers and companies.
Positive Cycles and First-Mover Advantage
ChargePoint has installed many more chargers than its closest competitor in the U.S., so the company has a large first-mover advantage. In his July 19 article InvestorPlace contributor Chris Markoch noted that the company has signed multiple impressive partnerships with, for example, Mercedes-Benz (OTCMKTS:DMLRY) and several major hotel chains.
These partnerships suggest that ChargePoint’s first-mover advantage has enabled it to benefit from at least two positive cycles.
Automakers obviously want to partner with ChargePoint because its many charging stations are convenient for drivers. The revenue generated by those partnerships gives the company the ability to build many more charging stations, starting the process again.
Meanwhile, the high recognition of ChargePoint’s brand and its branding power enables it to sign partnership deals with hotels and other companies.
By increasing ChargePoint’s presence in the U.S., the deals increase its branding power, starting the cycle again. What’s more, the deals with companies also bolster ChargePoint’s first-mover advantage, boosting the cycle involving automakers.
The Bottom Line
When evaluating companies whose growth is likely to be explosive, I believe that market capitalization is usually a more worthwhile valuation metric for long-term investors than price-to-earnings and price-to-sales.
Given ChargePoint’s huge growth potential in both the U.S. and Europe, I believe that its current market capitalization of $7 billion will prove to be a bargain.
After all, electric utilities, which sell the electricity that powers consumers’ homes, often have market capitalizations of $40 billion or more.
While I realize that there are important differences between ChargePoint and electric utilities when it comes to overall demand and competition, I think the leading provider of electricity for consumers’ EVs will be worth many times more than $7 billion in the long run.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.