ChargePoint’s Sales Growth Is on Track to Push the Stock Higher

Electric vehicle (EV) charging station company ChargePoint (NYSE:CHPT) is on track for higher growth after releasing its fiscal second-quarter results on Sept. 1. As a result, CHPT stock is set to move higher after an otherwise lackluster year so far.

EV stocks: A close-up shot of a ChargePoint (CHPT) charging station.
Source: YuniqueB / Shutterstock.com

Year-to-date (YTD), CHPT stock is currently down about 49%. Actually, the stock reached a trough of $20.21 on May 13. Since then, though, it’s up 3% to $20.83 as of the close of Sept. 28.

Based on the company’s growth prospects, CHPT could actually end up doing better than it has in a while. My new estimate for the stock’s target value is $29 per share, or about 39% over the present price. Here’s how I derived this promising price target.

Where Things Stand for CHPT Stock

If we’re going to value CHPT stock, let’s start with its recent Q2 results. Sales for the quarter ending Jul. 31 were up about 61% year-over-year (YOY) to 56.1 million. This led the company to raise its full-year revenue guidance by 15% to between $225 million and  $235 million. Before Q2, the guidance was for $195 million to $205 million for the fiscal year ending Jan. 31, 2022.

However, ChargePoint’s non-GAAP net income loss was higher YOY as well, at $40.4 million versus $22.6 million (Page 11). Moreover, the company is still losing money on a free cash flow (FCF) basis.

For example, for the six months ending Jul. 31, operating cash flow losses were $61.2 million. After capex spending of $7.8 million, its total FCF cash burn was $30.4 million for the first two quarters of 2021. This can be seen on Page 9 of the company’s fiscal Q2 slide presentation.

This implies that the run-rate annual cash burn, unless the company keeps growing sales and earnings, could be as high as $60 million. However, as ChargePoint has over $618 million in cash on its balance sheet, it won’t be running out of cash anytime soon.

How to Value ChargePoint

This company’s consistently growing charging port revenue and related subscriptions can be projected out several years. The best way to value CHPT stock is to use analysts’ projections in the future, given that EV charging ports are bound to keep growing.

For example, Seeking Alpha forecasts that by January 2026, sales are forecast to reach $1.17 billion. This is 4.25 years in the future. Discounting that revenue to the present at a 10% rate involves a factor of 66.69%. That means that the $1.17 billion in revenue is worth $780 million in present value today.

Next, we can apply a 12 times price-to-sales (P/S) factor to the present value revenue to derive its market value of $9.36 billion. Why do I use a 12 times P/S multiple? This is a one-third discount to the P/S multiple of 18 times sales, as seen from analysts on Seeking Alpha.

So, using the $9.36 billion valuation estimate, this implies that ChargePoint has significant upside over its recent market value of $6.72 billion. This represents a potential gain of 39.3%.

Therefore, CHPT stock is worth an implied 39.3% over the Sept. 28 price of $20.83, setting its target value at $29 per share. This is based on a 10% present value factor on its future sales 4.25 years in the future after applying a 12 times P/S multiple. With a higher multiple, the stock could be worth even more.

What to Do with CHPT Stock

Due to the excellent sales growth this quarter and the company’s elevated 2021 sales guidance, I suspect the market will begin to push CHPT stock higher soon. This could easily happen if Q3 sales and earnings continue to show progress. And that could very well be the case, given that ChargePoint’s number of connected EV ports throughout the U.S. and Europe continues to grow.

As a result, I think many growth-oriented investors should be able to see that CHPT stock is still cheap, despite its lack of profits. As long as revenue keeps rising at 50% to 60% rates on a YOY basis, the market will anticipate sales up to five years in the future.

That is the basis of this one’s present-day valuation. Using a forward-looking formula, my best estimate is that CHPT is worth some 39% more at $29 per share.

On the date of publication, Mark R. Hake did not hold any positions (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.


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