Electric vehicle (EV) charging network ChargePoint Holdings (NYSE:CHPT) represents the same long-term opportunity now that it did when it traded much higher. That implies beaten-down CHPT stock is a steal.
Investors should believe that is true based on the notion that ChargePoint is expected to maintain an increase in growth. The problem is that ChargePoint and EV stocks have fallen out of favor. More accurately, they simply got overheated a year ago.
As a result, CHPT share prices have fallen dramatically over the past year. And recently they’ve more than halved, falling to $12 from the mid-$20s back in November.
Growth to Profits in CHPT Stock
That’s really the issue with ChargePoint. It is growing quickly, but investors want profitability now. Investors are eager to see what ChargePoint will look like in several years from a fundamental perspective.
They want to know that it can be profitable then. They aren’t satisfied with its string growth in and of itself. But they should be, because the company is doing what it should.
Revenue reached $161.7 million through the first nine months of 2021. When those results were released, the company confidently upped its full year expectations from between $225 to $235 million to between $235 million to $240 million.
That was a strong signal. But it looks like those expected numbers could be even stronger based on consensus analyst expectations provided by Yahoo! Finance. Those figures pin ChargePoint’s full year revenues at $244.71 million on average. If you’re keeping track, ChargePoint’s revenues went from an anticipated $225 to $235 million to nearly $245 million in the span of a few weeks.
In short, the growth isn’t going anywhere. In fact, the 16 analysts with coverage believe that ChargePoint will report $378.7 million in revenue next year. That’s a 54.8% increase over this year’s anticipated number.
Inflation Hurts CHPT Stock
ChargePoint is a growth stock, so it makes sense that it’s suffering now. Investors are rotating into value stocks as Federal Reserve rate increases will affect the market. It isn’t the strong top-line growth that interests ChargePoint investors now so much as the bottom-line losses.
ChargePoint posted a $69.44 million net loss in Q3. That was substantially larger than the $40.89 million loss a year earlier. In an inflationary environment like the one we are currently experiencing, that looks bad. But that’s the opportunity inherent in CHPT stock: Dismiss current macroeconomic factors in favor of the longer narrative.
Investors have to ask themselves a question: Is the market going to disregard growth stocks indefinitely, or will they come back into vogue? I’m betting on the latter.
That means ChargePoint’s price should rise as a result. It is a simple buy-and-hold proposition, and given the company’s growth prospects, it is worth considering.
The Gross Profit Argument
ChargePoint’s success or failure will ultimately come down to its charging network business. The positive news is they already provide meaningful gross income. Through the first nine months of 2021, the company recognized $36.05 million gross income. That indicates its cost of sales isn’t bad.
But ChargePoint is a young company in an evolving space. Its operating expenses are therefore quite high. Those costs lead to net losses that make investors shy away.
Take the longer view with CHPT stock. The company will corral its operating expenses as time goes on. For now, take refuge in the idea that revenues are expanding very rapidly.
Combine that with the opportunity of CHPT stock being a beaten-down growth stock and run with it. In a few years, it will pay off. It is one of the rare growth stocks that actually fits the contrarian narrative right now.
On the date of publication, Alex Sirois 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.
