It’s time for the pick and shovel analogy for the electric vehicle (EV) sector, and ChargePoint (NASDAQ:CHPT) stock is all about picks and shovels.
If you’re not familiar with this old saw, it’s about the fact that during the Gold Rush – or any of the silver rushes for that matter – your money was best spent investing in the stores that sold picks and shovels to the miners than it was betting on any particular miner.
This analogy is usually used in young, dynamic sectors where everyone’s attention is drawn to the sexy final product yet fail to appreciate the value in the companies that help make that final result possible.
This time around, everyone is chasing EV car and truck companies yet few singing the praises of the infrastructure picks that make EVs so interesting in the first place. It’s like buying a Model T and then having nowhere to buy gas. Not so sexy sitting on the side of the road.
CHPT Stock Has Been Waiting
Also, not every miner is going to hit it rich. Most will fail. The same can be said of EVs. Remember, about 100 years ago, the first EV hit the broader market and there were dozens of car companies trying to make it. Less than 50 years later, the Big 3 ran U.S. carmaking and the same was happening in Europe as well.
That is what very likely will happen in this EV revolution. Over the coming years, we’ll see if Tesla (NASDAQ:TSLA) or Lucid Motors (NASDAQ:LCID) or NIO (NYSE:NIO) become global winners or whether they’re just a footnote in history.
But right now, the big valuations are certainly directed toward these companies. It may be part of the fear of missing out buzz that’s been around the industry, particularly fueled by TSLA’s recent big earnings win.
It may be about the fact that, since most drive cars, everyone understands EVs better than they understand charging stations.
Maybe it’s a little of both.
Whatever the reason, fewer investors are as excited about the companies that are building out the “filling” stations for EVs. Why are they important? Because if you’re on a 300-mile trip, you don’t want to hope your battery will make it. You need way stations to top off your battery.
Today, you see all the filling stations around. And remember, gas stations are a low-margin business, so it’s not the profits that make them so popular for business owners.
While most people are watching the horse race in EV makers, there’s another race going on to get EV charging stations around the globe.
A Smart Headstart
CHPT stock got started down this path almost a decade and a half ago. From its California headquarters, the company has expanded across North America and Europe, serving 14 countries now.
It has more than 118,000 locations across its network. Its fleet customers represent 76% of the Fortune 500. And it has seven times the market share of Level 2 charging stations than its closest competitor.
This is a significant competitive advantage.
The stock is now in growth mode, after merging with a special purpose acquisition company (SPAC) last September. The timing was good and the big inflow of cash ( its market cap is now near $7 billion) will help expansion.
It’s a great time for CHPT stock for two reasons. First, this isn’t a sexy, outrageously overvalued niche, yet. Second, the stock has sold off 47% year to date. It’s still up 33% from its IPO, but it’s not at crazy EV maker levels.
Most important, CHPT stock actually has products in the market. It has a proven business and has some industry clout because of its early entry into the sector before EVs were cool again.
It may lose some ground here but there’s real upside. Plus, it has such a significant network, it may well get bought out at some point for a significant premium.
On the date of publication, GS Early 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.
GS Early has been an award-winning financial writer and editor for nearly three decades, working with many of the leading financial editors and publishers during that time. He’s seen a few things and hears more.
