EVgo’s (NASDAQ:EVGO) high leverage to America’s electric-vehicle revolution and the relatively low valuation of EVGO stock make the shares very appealing at this point.
EVgo owns thousands of EV chargers in the U.S.
As of March, EVgo reported that it had owned the largest U.S. Public DC Fast charging Network including about 1,400 fast chargers at 800+ locations.
Moreover, under its initial deal with General Motors, (NYSE:GM) a rising power in the EV battles, EVgo is getting paid to build over 2,700 new fast chargers in the U.S. In November, the companies subsequently added 500 new chargers to the deal.
Encouragingly for GM’s outlook on the EV front, the automaker announced that all available reservations for its 2023 Cadillac Lyriq, an EV, were sold out within 19 minutes in October.
GM is also working on an electric version of the Hummer. Judging by the success of Ford’s (NYSE:F) electric F150, the electric version of the Hummer, which is reportedly due to be released in December, should be quite popular.
What’s more, GM intends to offer 30 new EVs globally by 2025. That fact, combined with the fact that GM offers one of the world’s leading ADAS offerings, should enable GM to continue to be one of America’s leading EV makers going forward.
As a result, the partnership between EVgo and GM is quite positive for EVGO stock.
Finally, EVgo is also partnering with Uber (NYSE:UBER). Of course, Uber is America’s leading rideshare company, and the firm is looking to convert a large portion of its fleet to EVs going forward.
Under the agreement, EVgo will give discounts to Uber’s drivers, giving them great incentives to utilize EVgo’s chargers.
Also noteworthy is the fact that the infrastructure law has allocated $7.5 billion for subsidizing EV chargers. It’s very possible that EVgo could be awarded a sizeable portion of those funds.
Meanwhile, Congressional Democrats’ spending plan, which is likely to pass next month, will greatly increase the incentives for Americans to buy EVs. As a result, EV adoption should soar, causing the demand for EVgo’s chargers to also jump.
The Valuation Issue
In recent weeks, Bank of America and Credit Suisse downgraded their ratings on EVGO stock, citing valuation.
“While we see a number of positive industry tailwinds around electrification, expectations are elevated at the current relative valuation,” wrote Bank of America, which also cited increased competition as a negative factor for the shares.
The firm cut its rating on the stock to “underperform” from “neutral.”
Also downgrading the shares on valuation concerns was Credit Suisse. The firm believes that the shares already reflected the impact of the infrastructure law and of the company’s alliances with GM and Uber. It set a $17 price target on EVGO stock.
But I believe that the shares actually remain extremely undervalued, based on the stock’s current market capitalization and the company’s long-term potential.
Specifically, the shares have a market capitalization of around $932 million, versus $8.5 billion for ChargePoint (NYSE:CHPT) and $1.6 billion for Blink Charging (NASDAQ:BLNK).
Yet I believe that EVgo’s partnerships and its lead in the U.S. fast-charger market leave it better positioned than both of those companies over the longer run.
The Bottom Line on EVGO Stock
Given its partnerships with GM and Uber, along with its lead in the U.S. fast-charger market, EVgo is very well-positioned to benefit from the EV revolution,
What’s more, in light of the shares’ low market capitalization versus two of its most important competitors, I believe that the shares currently vastly underrate the company’s long-term potential. As a result, I advise long-term investors to buy EVGO stock.
On the date of publication, Larry Ramer held a long position in EVGO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.