There are things I really like about ChargePoint (NYSE:CHPT) stock, including the growth rate and the chart.
At the same time, CHPT stock has some concerns as well. As much as I like the promise that this stock has, there are a couple of key hurdles to take note of as well.
This is one of those stocks that can be a massive performer when it’s hot. For instance, the stock exploded higher by almost 300% from late-October 2020 to its high in December. That said, the stock can be prone to large and prolonged declines and cannot hide from the volatility.
A Closer Look at CHPT Stock
The EV and auto stocks trade has been red-hot. Tesla (NASDAQ:TSLA) commands a market capitalization north of $1 trillion. Ford (NYSE:F) is near 10-year highs. Ferrari (NYSE:RACE) is at an all-time high.
Countless others are starting to look better too.
For CHPT stock, it’s teetering just below the 200-day moving average and the critical $26.25 level. If the stock can push through this zone, it opens the door the 50-week moving average and downtrend resistance (blue line).
If — and this is a big “if” — ChargePoint can clear this combination of current resistance, it could open the door for a quick squeeze up to the June 29 high at $36.86. That’s up roughly 50% from current levels.
If we want to be a bit more conservative, we could say the $35 area, but it’s just splitting hairs at that point.
On the flip side, keep a close eye on the 10-day moving average. So far that’s been guiding CHPT stock higher. If it fails, it opens the door down to the 21-day and 50-day moving averages and while it doesn’t deal a fatal blow to the bull case, it does create more of a risk-off situation.
Below these measures puts the key $19.50 to $20 area in play. If that’s the case, we’ll have to retake the temperate of EV stocks.
In short, over the 10-day and $24 is good, but over the $26.25 is great.
The Good, the Bad and the Ugly
The good is pretty simple: ChargePoint has pretty robust growth. With an $8 billion market cap, it’s far from obscure. Further — as you’ve likely deduced from its name — ChargePoint is an EV infrastructure company.
It operates the largest online network of independently owned EV charging stations operating in 14 countries and makes the technology used in it.
In so many ways we can say if EV stocks are hot, CHPT likely is too. The same is likely true what EV stocks are cold.
When I look at the growth estimates, they are impressive. Some sites show not just strong growth but accelerating revenue growth from 2022 to 2023. Others show more mild growth rates but call for back-to-back years of more than 50% growth.
The bad? We’re not talking about a company with a positive bottom line or free cash flow. When dealing with growth stocks though, that is oftentimes the case, so it’s not necessarily a deal-breaker. At least for me.
For many companies — and ChargePoint certainly fits the bill here — they need to go after market share. To get that market share, they will sacrifice profits and cash flow. For CHPT stock, it would be foolish to sacrifice tomorrow’s growth for today’s bottom line as the EV market feels like it’s finally hitting a major tipping point.
So what’s the ugly?
The valuation is not pretty here. CHPT stock trades at roughly 35 times this year’s revenue estimate. Even with strong revenue growth in the pipeline, it still trades at 22 times 2022 revenue expectations.
These are some of the revenue-based valuations we see from best-in-show growth stocks during strong bull runs. To see it from CHPT stock does raise an eyebrow.
I certainly won’t marry this stock, but I’d be willing to date it so long as the technicals are working in the bulls’ favor and if EV stocks continue to trade well.
On the date of publication, Bret Kenwell 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.