ChargePoint (NYSE:CHPT) posted worse than expected earnings on May 31, when its earnings-per-share (EPS) came in at negative 27 cents, compared to analysts’ forecasts of negative 21 cents. Investors may want to wait for CHPT stock to fall further before buying in at a good investment point.
However, the company’s quarterly revenue came higher than expected at $81.63 million. This exceeded prior analysts’ expectations by $5.58 million. Moreover, ChargePoint now has 188,000 activated electric vehicle (EV) charging ports under management at the end of the quarter, including about 57,000 in Europe.
The problem is the company’s non-GAAP gross margin fell to 17%, down from a 23% gross margin a year ago. This is down from its peak gross margin of 27% margin in Q3 FY 22.
ChargePoint blamed the lower earnings on supply chain disruptions and “headwinds,” which affected both cost and supply availability. The lack of chips, motherboards and similar electronic parts hindered its ability to install more ports and bring new charging ports online.
The bottom line seems to be that until China’s supply and shipment problems ease up, this company is going to have issues with its earnings.
ChargePoint affirmed that it continues to expect revenue of $450 million to $500 million in the year ending January 2023. For example, Seeking Alpha shows an average of 18 analysts for revenue forecasts of $463 million. That puts the stock on a price-to-sales multiple of 9 times.
However, for the year ending January 2024, the analysts forecast a huge gain in revenue (up to $728.82 million). That lowers the valuation metric to just 5.7 times revenue.
During the quarter ending April 30, ChargePoint produced a negative free cash flow (FCF) of $74.2 million (after capex spending). ChargePoint was able to raise $300 million from the sale of a convertible note, so its cash balance actually rose to $540.5 million from $315 million at the end of January 2022.
This means that the company has about 7 quarters of cash available assuming its $74 million cash burn rate stays at this level. However, I don’t think that will happen. The cash burn is likely to diminish each quarter as sales rise, and eventually turn positive.
Where This Leaves CHPT Stock Investors
Investors in CHPT stock should be careful here. For one, until the company turns FCF positive and can reduce its ongoing margin problems, the stock could be weak.
On the other hand, its huge sales growth, despite supply issues which seem to be easing, will eventually lead to positive FCF. This means that it won’t be burning through cash and the cash balance won’t keep declining. As a result, the market will eventually have much more confidence in the company’s future profitability.
As a result, investors in CHPT stock should take a long view and try to average down into any weakness in the stock. In addition, new investors may want to wait for an extreme point, where investors have sold down their shares.
Moreover, investors may expect that there could be a few more quarters of weak earnings. That will provide plenty of opportunities and dips in the stock. So they will have many more chances to get in at advantageous points.
Therefore, it seems best for enterprising investors to wait further for those points, associated with massive selloffs. This could easily occur near the end of the year when investors start taking their year-end tax losses.
On the date of publication, Mark Hake did not hold (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.