With investors showing more excitement lately for electric vehicle (EV) stocks, ChargePoint (NYSE:CHPT) stock is moving higher along with the sector.
After briefly falling below $20 per share in early October, CHPT stock has bounced back to above $21 per share.
Markets have shrugged off the many worries that tanked it in September. Speculative growth plays like EV stocks don’t appear at immediate threat of falling out of favor. With this, a further move higher may be in the cards for the popular EV charging play.
Besides a rebound in bullish sentiment for EV plays, other factors could give it a near-term boost as well. For instance, progress with the U.S. infrastructure bill. In order for it to get passed, a lot is getting taken out of it.
Yet based on the latest headlines, billions set aside to help America’s clean energy goals remain. In other words, billions in government largess for the build-out of America’s charging infrastructure. This of course bodes well for this company’s stateside expansion.
That said, while another near-term jolt could happen, caution remains key with this stock. There’s still plenty that could negatively affect its ability to grow in-line with the projections priced into it.
Add in the risk that growth stocks remain in danger of correcting, and treating this as a speculative trade, rather than as a long-term buy-and-hold, may be the best approach for now.
The Recent CHPT Stock Rally
The long-term bull case for ChargePoint remains up for debate (more below). Yet for now, the rebound it’s been on since earlier this month may have some more runway but perhaps not due to anything company-specific.
ChargePoint next announces earnings on Dec. 1. Barring news of another M&A (mergers and acquisitions) deal, like the pair of deals announced last summer, direct headlines about the company may be limited between now and then.
However, recharged bullishness for the EV sector by-itself could enable its rally to carry on. Especially as the market has shrugged off inflation, interest rate, and tapering worries, again, and shows little issue paying up for growth stocks.
Maybe not back to $35 per share, which it last hit during its short-lived rebound back in June. But possible developments, like passage of the EV bill, could enable it to make its way toward $30 per share.
Investors looking at this as a quick trade may find opportunity. Investors looking for a long-term play that could see an eventual triple-digit percentage increase in price, on the other hand? They might want to look elsewhere.
Why Another Drop Below $20 Could Happen
In the near-term, CHPT stock may stay on its current trajectory. But beyond the next month or so, there’s still the risk it makes another slide below $20 per share. As I discussed in my last article on the EV charging play, market-specific and/or company-specific factors could send the stock to much lower prices.
Regarding market-specific factors, Fed tapering and interest rate increases could put pressure on this growth stock, valued mainly on future results. As for company-specific factors, there are plenty.
Competition continues to heat up. Rivals include Blink Charging (NASDAQ:BLNK), EVgo (NASDAQ:EVGO), and Volta (NYSE:VLTA).
Not only that, there are issues that could impact its long-term performance. In terms of revenue growth, a preference for home-based chargers may lower demand for public charging stations.
When it comes to its ability to become profitable the company will need to remedy an issue that’s played out recently. Hardware installation revenues may be moving up at a nice clip, but revenue growth for its higher-margin software subscription business is lagging behind.
Putting it simply, this may be the largest long-term risk for the company. If the SaaS-esque elements of its business (asset-light, recurring revenue) fail to take off, it’ll become harder and harder for shares to maintain a double-digit price-to-sales (P/S) ratio.
The Verdict on ChargePoint Stock
If the recent renewed excitement for EV plays carries on, the rebound for this charging play could carry on in the short term, but it’s going to be a few years before this company starts generating results with the pivot to EVs still in its early stages.
ChargePoint will eventually need to justify its current market capitalization ($6.83 billion). In the medium-term to long-term market volatility and/or disappointing results from the company, may send it tanking once again.
Until it next releases results/outlook in December, which I’ll admit could prove my concerns about it are overblown, tread carefully with CHPT stock.
On the date of publication, Thomas Niel 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.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
