Despite a poor showing for its third quarter, shares of electric vehicle (EV) charging specialist ChargePoint (NYSE:CHPT) are popping higher on Thursday. Initially, the company’s expanded Q3 net loss saw CHPT stock dip in afterhours trading yesterday. However, it’s possible that the bears may have overextended themselves, leading contrarian options traders to take the opposite wager.
At face value, today’s positive price action runs counter to the firm’s financials. According to MarketWatch, ChargePoint posted a Q3 net loss of $158.2 million or 43 cents per share. These figures are unfavorable next to the net loss of $84.5 million, or 25 cents per share, reported the same time last year.
Adding insult to injury, Q3 revenue landed at only $110.3 million, a 12% erosion from the $124.3 million reported one year ago. Analysts surveyed by FactSet had pegged the consensus sales target at $124.9 million. Unfortunately, despite overall strong interest in EVs, CHPT stock is also failing to gain traction, losing around 75% so far this year.
Per Bloomberg, ChargePoint’s management team attributed the company’s conspicuous revenue drop in large part to the 46-day labor strike against legacy automakers like General Motors (NYSE:GM) and Stellantis (NYSE:STLA). Essentially, the company says that the strike caused automakers and dealerships to become “hesitant to install charging equipment for new EVs.”
As a result, this delay negatively impacted ChargePoint’s core business of implementing charging infrastructure. Still, in the post-pandemic ecosystem, too many left turns can eventually right the ship.
Anticipation of Short Covering May Be Fueling CHPT Stock
On paper, ChargePoint seemingly couldn’t have asked for a worse earnings disclosure. Just in the trailing month alone — and inclusive of the Thursday spike — CHPT stock has lost more than 20% of equity value. What makes the situation worse for the charging specialist is that other competing enterprises don’t seem to be suffering from the same dilemma. For example, over the past one month, EVgo (NASDAQ:EVGO) shares have popped more than 30%.
Fundamentally, ChargePoint suffers from its rivalry with Tesla (NASDAQ:TSLA). For years, the EV pioneer built out a wide network of charging stations with plugs that utilize a different connection design than the rest of the industry. Given Tesla’s influence, other automakers have begun switching to its standard, putting ChargePoint in a bind.
With this context, it’s not surprising that major entities have decided to take bearish bets by selling CHPT stock call options. According to Fintel’s options flow screener — which exclusively filters for big block transactions likely made by institutions — a number of traders underwrote the risk that CHPT won’t rise above certain thresholds.
If CHPT stock continues to rise higher, the call sellers (writers) may be obligated to fulfill the terms of the contract under exercise. To mitigate the unrestricted losses, bearish traders will need to cover the position, which has bullish implications.
Why It Matters
Within the past three months, analysts peg CHPT stock as a consensus moderate buy. This assessment breaks down as seven buys, 10 holds and zero sells. Overall, the average price target for shares clocks in at $4.98, which might make the bears mentioned above nervous.
On the date of publication, Josh Enomoto 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.
