After a solid showing in the second quarter, ChargePoint Holdings (NYSE:CHPT) stock has witnessed a healthy increase.
The charging network provider saw its shares surge 8.3% on the day after it released its earnings report.
Even with this recent pop, the valuation divide between its fundamentals and market capitalization is enormous making CHPT stock a buy on any pull-back.
Before going public earlier this year, the company had told investors that its revenues would rise from $135 million in 2020 to $1 billion by 2024.
Based on its financial performance so far, it is well on track to achieving those lofty growth estimates. However, the company is still yet to produce any profits, and even with its updated guidance, it trades at a price to sales ratio of 32 times.
CHPT stock is one of the most expensive bets in its fast-growing industry, limiting its attractiveness.
Solid Second-Quarter Results
ChargePoint released its second-quarter earnings results last week. Revenues of $56.1 million rose 61% from the prior year period. Moreover, it witnessed a healthy growth in its charging systems at 91% to $40.9 million.
On the flip side, its subscription revenues only grew 22% from the same period last year.
Due to its reliance on hardware sales, ChargePoint is generating only 23% non-GAAP gross margins. Subscription margins are more impressive on a GAAP basis at 35% and 50% based on non-GAAP numbers.
The low margins are a problem because it indicates that the company has a high-cost structure. It spent more than $40 million in the quarter to develop its software solutions to improve its subscription offerings. The long-term sustainability of its software model is questionable, though.
Operating expenses during the quarter came in at a whopping $85.1 million, including the $28.9 million in stock-based compensation. ChargePoint has an expensive cost structure which is why its second-quarter GAAP net loss stood at $84.9 million.
Company President and CEO Pasquale Romano was upbeat about ChargePoint’s performance and said he felt the company grew its commercial, fleet and residential business”significantly.”
Furthermore, during the quarter, the company inked an agreement with Mercedes-Benz USA and acquired vehicle management and electric bus provider ViriCiti.
The two acquisitions of Has.to.Be and ViriCiti show that the company is betting on European expansion. Has.to.Be is an e-mobility technology company with a top charging software platform.
It has 40,000 networked ports and over 250,000 through open roaming agreements in Europe. Therefore, it could offer ChargePoint access to roughly 90% of Europe’s charging stations
ViriCiti’s acquisition is another feather in the cap for ChargePoint. It is a provider of electrification solutions for electronic buses and commercial fleets.
Its services include monitoring battery data, providing driving data, OEM-agnostic telematics, battery health, and other data. It will enable ChargePoint to deliver a comprehensive solution for electric fleet operators.
Looking ahead, management has released positive guidance for the third quarter and the full year. Its third-quarter revenue is expected to come in at $60 million to $65 million versus a consensus of $54.7 million. Revenue is expected to come in at $225 million to $235 million versus a consensus of $206.5 million for the full year.
Bottom Line on CHPT Stock
CHPT stock has climbed over 115% in the past-12 months. However, it has lost most of those gains at this point. That is, in fact, a great thing for investors, as it brings its price closer to its intrinsic value.
Though it has performed well of late it trades at more than 30 times forward sales and is significantly overpriced in comparison to its peers. Hence, it’s best to wait for a pull-back before placing your bets on CHPT stock at this time.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions 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.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.