ChargePoint (NYSE:CHPT) is growing very rapidly, and that trend will, in all likelihood, continue for the foreseeable future. Meanwhile, the Street’s concerns about supply chains and pricing pressures that have kept a lid on CHPT stock are overdone. That’s because these issues are likely to fade in the medium term.
As a result of these points, I continue to be bullish on ChargePoint’s shares and still recommend that investors buy them.
Rapid Growth That’s Poised to Continue
For all of the company’s fiscal 2021, its revenue jumped 65% to $242.3 million. Last quarter, its sales soared 90% year-over-year to $81 million. And for the company’s current fiscal year, ChargePoint expects to report revenue of $450 million to $500 million. In other words, the firm expects its revenue to double, give or take, during its current fiscal year.
Those numbers clearly show that ChargePoint is effectively exploiting its growth prospects, which I identified in an October 2021 column about the EV charger operator.
With many if not most major auto companies starting to release new electric models and a significant number of startups ready to release new EVs, ChargePoint’s growth could very easily accelerate going forward.
Additionally, on the company’s Q4 earnings conference call, its CEO, Pasquale Romano, stated that “The momentum in our commercial business, which includes everything from retail parking, fueling and convenience, et cetera, indicates that businesses of all types are preparing for the electric future.”
Also likely to meaningfully accelerate EV adoption — and consequently the demand for EV chargers — is the current high price of gasoline.
In light of the U.S. government’s intention to spend $5 billion on deploying EV chargers through 2026, a virtuous cycle is likely to be created. That is, more chargers will encourage more consumers to buy EVs, enabling companies like ChargePoint, EVgo (NASDAQ:EVGO) and Blink (NASDAQ:BLNK) to profitably deploy more chargers. Then the cycle will begin again.
CHPT Stock Margin Worries Are Overdone
Since ChargePoint reported its Q4 earnings, CHPT stock has climbed about 20%. But despite the company’s rocket-like growth, the name remains more than 50% below its 52-week high of $36.86.
One reason for that is the Street’s concerns about a three-percentage drop in the company’s gross margin, excluding certain items, to 24% in Q4 versus Q3.
For example, Bank of America, according to a summary by The Fly, contended in the wake of ChargePoint’s Q4 results that its revenue growth was “more than offset by corresponding gross and operating margin pressures from supply chain challenges and mix headwinds.” The firm kept a “neutral” rating and a $16 price target on the shares.
But according to multiple reports, supply chain issues could become less intense in the U.S. in the second half of the year. As more Americans return to work because their savings run out and more money is spent on services and less on goods due to reduced worries about the coronavirus, I do expect America’s supply chain woes to dissipate in the medium term. These same trends, along with the Federal Reserve’s interest rate hikes, should also cause inflation to decelerate.
As a result of these developments, by Q4, ChargePoint’s margins are likely to recover to their Q2 levels.
The Bottom Line on CHPT Stock
Consistent with my previous predictions, ChargePoint’s revenues are growing dramatically. Meanwhile, there’s a good chance that its revenue growth will accelerate in the coming quarters, and its margins should increase to at least their Q4 levels.
As far as valuation is concerned, I believe that the stock’s current $6 billion market capitalization greatly undervalues the company’s long-term potential.
As a result of all of these points, I recommend that long-term investors buy CHPT stock.
On the date of publication, Larry Ramer held a long position in EVGO stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.