Before we address the fundamental opportunity within ChargePoint (NYSE:CHPT) stock, we should assess the electric vehicle (EV) market in general.
All major car manufacturers have committed to steering away from the internal combustion engine. Furthermore, the chief challenger alternative is currently the EV. This almost guarantees exponential demand growth on EV peripheral businesses. ChargePoint is one, so CHPT stock has a viable bullish long term thesis.
Tesla (NASDAQ:TSLA) opened the door, and new entrants like Lucid (NASDAQ:LCID) and Fisker (NYSE:FSR) are busting in. They will add to the EV ubiquity at an exponential rate. This is not counting the old dogs learning new tricks, like Ford (NYSE:F) and General Motors (NYSE:GM).
While the manufacturers could face problems adjusting to lower margins, it’s a gift to CHPT. The more EVs on the road, the larger the opportunity becomes.
CHPT Stock Loses Traction
In spite of this obvious long runway ahead of the company, the stock has flailed of late. It remains well off its 2020 highs, which came late that year. And since then CHPT leaked out 60% of its value. The good news is that this is more about expectations than operational problems. The 2020 excessive exuberance is normalizing. This happens through stock price deterioration but not the company prospects.
The fundamental thesis behind owning ChargePoint stock for the long term remains the same. The fluctuation in the stock is more about investor sentiment. I wrote about an upside opportunity in October, which delivered more than 20% of quickly. Alas, the rally ended and price reverted back to the base near $18 per share.
However, therein lies the opportunity now. At these levels, investors likely have more conviction. The evidence for that is that they bought the stock up from here several times already. In November 2020, CHPT rallied 160% from around $18 per share. They retested the levels vigorously three months later and then again twice recently.
Investors can assume it holds again to serve as a base. Therefore, the long-term upside opportunity in CHPT stock remains favorable. There will be technical resistances at $22 and $26 per share. However, having solid footing below should embolden owners to not bail as quickly as last January.
Company Fundamentals Offer No Help Yet
Since this is an early mover in a young EV market, its fundamental metrics are not yet a selling point. The income statement is still small with revenues of $160 million. Its price-to-sales may even suggest a small bloat situation, but that’s not a concern yet. First and foremost, startups need to concentrate on growing their top line.
I called it a “startup” even though it is not one. ChargePoint started in 2007, but back then the market was completely different. Thanks to Tesla, EVs are everywhere, and on track to continue to contend for dominance. My only caveat is that success will depend heavily on finding better battery technologies.
Regardless of what form that happens, ChargePoint should have a good opportunity to grab its fair share. To state the opportunity plainly, there’s a gigantic potential addressable market in charging electric vehicles.
There Are Extrinsic Risks
Now that I’ve excited you about the opportunity there, it’s time to temper enthusiasm. The S&P 500 is breaking records, therefore we may be susceptible to corrections. If and when they happen, they will put downside pressure on all stocks.
Therefore, it makes sense to only take partial positions regardless of conviction levels in CHPT stock. I would suggest using options to reduce out-of-pocket expenses and remain bullish the opportunity.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.