While electric vehicles (EV) may represent the future of mobility, the volatility underlining EV charging station provider ChargePoint (NYSE:CHPT) imposes anxieties. Earlier Wednesday morning, management announced an at-the-market (ATM) offering of $175 million of new equity. Subsequently, CHPT stock plunged, likely due to significant viability concerns.
According to the accompanying press release, ChargePoint secured a commitment to purchase $175 million of CHPT stock based on the company’s ATM offering facility. This commitment stemmed from the lead investor of ChargePoint’s $300 million in convertible notes issued in April last year.
In a separate transaction, the EV infrastructure specialist raised net proceeds of $57 million in additional funds under the ATM facility during the fiscal third quarter of 2024.
Investors Read Between the Lines Regarding CHPT Stock
While ChargePoint CFO Rex Jackson framed the total capital raise of $232 million as supporting its stated goal of adjusted EBITDA profitability in fiscal Q4 of next year, three points stood out that may have hurt CHPT stock:
- Dilution: While ATM offerings usually don’t negatively impact share prices as much as traditional follow-on equity offerings, they’re still dilutive to existing shareholders.
- Convertible notes: Separately, within the press release, ChargePoint and the aforementioned lead investor adjusted the conversion price of the underlying convertible notes to $12 per share from $24.03. Such a lowered rate may signal a lack of confidence.
- Increased debt cost: Also, the cash coupon of the convertible notes increased from 3.5% to 7% per year. As well, the payment in kind coupon rose from 5% to 8.5% per year. This shift indicates rising cost of debt.
With CHPT stock down about 57% year-to-date, investors may have figured the writing was on the wall.
Options Market Points to Limited Upside Potential
Against a financial context, investors may be anxious about CHPT stock because of the cash burn implications. According to investment data aggregator Gurufocus, ChargePoint suffered a loss of $173.6 million in free cash flow (FCF) in the fiscal year ended January 2022. This figure widened to $285.6 million in the red the year after. On a trailing-12-month (TTM) basis, FCF loss sits at $343.6 million.
Understandably, the options market has not been kind to CHPT stock. For example, earlier in the year, Fintel’s screener for options flow — which targets big block transactions likely made by institutions — shows that traders were speculating on bought call options with a strike price ranging between $20 to $27.
Now, for options expiring from November through May 2024, derivative contracts (whether calls or puts) feature a strike price no higher than $20, at least among big money transactions recorded by Fintel. Therefore, the broader expectations among speculators have diminished considerably.
Why It Matters
Wall Street analysts rate CHPT stock a consensus strong buy, breaking down as 12 buys, three holds and zero sells. Notably, Needham reiterated the most recent rating of “buy” nine days ago. However, it’s possible that market experts may adjust their assessments based on today’s dour news.
On the date of publication, Josh Enomoto 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.
