Two negative catalysts — a note from research firm Needham and concerns over the Federal Reserve tightening monetary policy — caused shares of EVgo (NASDAQ:EVGO) to plunge from their mid-November high. With EVGO stock off roughly 58% from that high, it’s clear to me that investors overreacted to these catalysts and that the selling is overdone.
Meanwhile, the bullish catalysts for the operator of the largest fast-charging public network for electric vehicles in the United States and EVGO stock appear only to have strengthened.
Why Investors’ Fears Are Overblown
On Dec. 28, EVGO fell as much as 12% following an analyst report from Needham in which the investment bank initiated coverage with a “hold” rating and no price target. “We believe the company’s strategy, astute management team, strong liquidity position and solid fundamentals will make it a formidable player in the space. However, we think long-term Street expectations are too aggressive,” the analyst wrote.
I’m not sure what the analyst means by “long-term Street expectations,” but the EV market is expanding rapidly and still in the early growth stage.
Given this, an EV charging company that has all the positive attributes Needham cited — along with great partnerships and first-mover advantage — could generate tens of billions of dollars in annual revenue in a few years. Yet, EVgo’s enterprise value is a paltry $575 million. That doesn’t make a whole lot of sense to me.
On the macro front, another contributing factor to the sell-off in EVGO stock was fears of more hawkish monetary policy. The specter of rising interest rates and the end of the Fed’s bond-buying program had investors abandoning growth stocks like EVGO. However, the Nasdaq’s rebound over the past four trading days appears to be signaling that investors are once again willing to take on some risk.
EVgo’s Positive Catalysts Have Strengthened
In previous columns, I identified the company’s alliance with General Motors (NYSE:GM) as a major positive catalyst for EVGO stock. Since the deal was announced in August 2020, the outlook for GM’s EV business has only improved.
For starters, the venerable American automaker is seeing strong demand for its electric vehicles. GM’s Cadillac Lyriq electric SUV sold out in less than 20 minutes. And GM execs said they had more than 125,000 hand-raisers for the GMC Hummer EV Pickup and SUV as of late November.
In early January, GM announced that it was developing electric versions of its popular Chevy Equinox EV and Blazer EV. And later that month, the automaker confirmed plans for a multibillion-dollar investment to convert a Michigan factory into an electric vehicle development hub.
This is all part of GM’s plan to dominate the EV market. As CEO Mary Barra said recently: “We want to lead in EVs. Full stop.”
So, I couldn’t think of a better partner for EVgo than GM. The two companies are working together to expand the EVgo network to 3,250 charging stalls in 75 metropolitan areas in at least 40 states by 2025.
What’s more, in another sign of strong demand, PlugShare, an EV charging information app owned by EVgo since mid-2021, said registrations doubled last year, with the number of global registered users topping 2 million.
The Bottom Line on EVGO Stock
GM’s ambitious EV plans and strong demand for its electric trucks and SUVs bode very well for EVgo, as does the rapid growth in the PlugShare app.
The current enterprise value of EVGO stock is tiny when compared with the company’s opportunity in the EV sector, which will ultimately be gigantic. Given this, I continue to recommend that long-term investors buy the shares.
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 13 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.
