ChargePoint Holdings (NYSE:CHPT) stock represents a company that is one of the largest EV charging networks worldwide.
The company had more than 225,000 charging ports across North America and Europe at the start of 2023, but has run into a number of problems lately. Below are three reasons investors should consider selling their CHPT stock now.
Profitability and CHPT Stock
Despite having installed several useful charging infrastructure across both North America and Europe, ChargePoint has been losing money and generating negative free cash flow since its inception in 2007. Those losses continued in 2023.
In particular, for their first quarter earnings print, ChargePoint reported $130 million in revenue, with a net loss of $79.4 million. Similarly, for the second quarter, ChargePoint reported an enlarged net loss of $125.2 million on revenue of $150.5 million.
Moreover, while the EV charging network’s valuation from a sales multiple perspective does not seem too high, ChargePoint’s profitability multiples are in another world.
As equities traders continue to scrutinize valuation multiples in a high interest rate environment, it’s hard to see CHT stock sustaining these kinds of valuations in the long term. Shares could conceivably plunge further than they have already.
Cash burn Could Mean Equity Raises
The lack of profitability affects not only ChargePoint’s trading multiples, but also how the company maintains its balance sheet. As of their second quarter earnings report, the company had $233.5 million of cash and cash equivalents on their balance sheet.
That was coupled with $295.5 million of long-term debt, all of which are ‘convertible notes’ due in 2027. These hybrid debt instruments allow lenders to convert their debt investment into equity as the principal comes due.
The interest payments tied to ChargePoint’s convertible notes are tucked into principal amount over time, which will help the company to save cash flow in the near term but will push existing shareholders to give up more equity in the long-term.
As ChargePoint loses money, their cash balance, in turn, has continued to dwindle, which has pushed them to access capital from equities markets.
In October, the company raised $232 million from both new and existing investors. More equity raises like this not only dilute current shareholders but also signals to them the company is not managing cash well. This is a major red flag as the economic outlook remains murky at best.
CHPT Stock and the Competition
From a competition perspective, ChargePoint also has a number of obstacles ahead of it. In particular, ChargePoint faces fierce competition from not only Blink Charging (NASDAQ:BLNK) and EVgo Services (NASDAQ:EVGO) but also from the electric vehicle giant Tesla itself.
Further, more and more EV makers are signing up to use Tesla charging infrastructure, which could imply Tesla’s superchargers are on their way to becoming an industry standard.
Texas approved a plan to require EV charging companies to include Tesla’s plug if they want to be eligible for federal funds. If other states follow suit, it could make growth for ChargePoint even more difficult.
On the date of publication, Tyrik Torres 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.