ChargePoint Stock Looks Attractive for Long-Term Investors

ChargePoint (NYSE:CHPT) stock listed on March 2021 and surged to all-time highs of $36.86 by June 2021. Subsequent to this bullish phase, CHPT stock has largely been in a downtrend and currently trades at $17.47.

CHPT a chargepoint charging station
Source: Michael Vi / Shutterstock.com

The correction does not come as a surprise. In March 2021, ChargePoint reported annual revenue of $146 million. Considering the all-time high stock price, the market capitalization was $11.6 billion. The stock was therefore trading at 80 times sales.

However, after the deep correction, the valuations look reasonable. In January 2022, J.P Morgan (NYSE:JPM) upgraded CHPT stock to “overweight” with a price target of $20. This would imply about 14% upside from current levels. In all likelihood, CHPT stock has bottomed out.

From a macro perspective, these are interesting times. The escalation in geopolitical tensions in Europe has translated into a surge in crude oil prices. To a large extent, the region depends on Russia for its energy. Further, as oil trends higher, there is likely to be an accelerated shift toward electric vehicles (EVs).

Without a proper infrastructure, large scale adoption of EVs is unlikely. ChargePoint is well positioned to benefit with multi-year tailwinds.

Robust Growth Is Likely to Sustain

For 2021, ChargePoint reported revenue of $242.3 million. On a year-over-year basis, the company’s revenue increased by 65%.

It is also worth noting that for the current financial year, the company has guided for revenue of $450 to $500 million. At mid-range of the guidance, the company is positioned for revenue growth of 96%.

Clearly, with growth accelerating, CHPT stock looks interesting. I also believe that healthy growth is likely to sustain in the next few years.

The first reason to believe that revenue growth will accelerate is the company’s geographic diversification. ChargePoint has a strong presence in the U.S. However, the company has been ramping-up infrastructure in Europe. Presence in two high-growth geographies will ensure that momentum sustains for the company. For fourth quarter 2022, the company reported just 12% revenue from Europe. However, on a year-over-year basis, revenue growth from the region was 135%.

Further, the company’s revenue primarily comes from network charging infrastructure and subscription services. At the end of January 2022, the company had 174,000 ports activated with 51,000 in Europe. As the number of ports increase, the company’s subscription service revenue will swell. This is also likely to have a positive impact on the earnings before interest, taxes, depreciation, and amortization (EBITDA) margin.

Cash Burn Is Not a Concern

It is worth noting that for the last financial year, ChargePoint reported cash used in operations of $157 million. On a year-over-year basis, the cash burn accelerated. However, I don’t see cash burn as a concern considering two factors.

First, ChargePoint is still at an early growth stage. The company’s expenditure related to research, sales and marketing have surged. This has translated into accelerated top-line growth. The operating margin is likely to improve gradually in the next few years. With robust research and development, ChargePoint has several products lined up for release in 2022.

Furthermore, as of January 2022, ChargePoint reported cash and equivalents of $315 million. With zero debt, the company has ample financial flexibility.

In the conference call, management indicated that the company will achieve cash flow break-even in 2024. With operating leverage, the company is positioned for healthy cash flows.

Concluding Views on CHPT Stock

ChargePoint is well positioned for sustained growth in the next few years. The company has also been widening its product pipeline, which will support growth.

In a December 2020 presentation, ChargePoint provided investors with a long-term revenue guidance. The company believes that revenue can accelerate to $1.5 billion in 2025 and $2.1 billion in 2026.

These are steep estimates. However, I believe that the numbers are achievable considering the under-penetration of charging infrastructure in the U.S. and Europe. Acquisitions are also likely to support the company’s growth trajectory.

The recent geopolitical crisis in Europe underscores the importance of renewable energy transformation. ChargePoint seems well-positioned to benefit.

CHPT stock seems to have bottomed out after a meaningful correction. Current levels seem attractive for fresh exposure.

On the date of publication, Faisal Humayun 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.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.


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