Electric vehicle (EV) charging infrastructure provider ChargePoint (NYSE:CHPT) slipped on Wednesday despite some much-needed good news. An analyst recently initiated coverage of CHPT stock, which sees it moving significantly higher. Nevertheless, the underlying company must fight back against a wall of skepticism.
According to Investing, Benchmark launched coverage of CHPT stock with a “buy” rating. In addition, the analysts — led by Mike Hickey — set a price target of $4.25. If shares reach that lofty point, the move would represent a gain of nearly 115% from the current market price.
Specifically, Hickey highlighted ChargePoint’s business model, which combines the sale of EV charging stations with ongoing revenue from cloud services subscriptions. Labeled as a “land-and-expand” approach, this directive has helped the company establish a significant footprint in the EV charging landscape.
Further, Hickey argues that this strategy positions the company to benefit from the forecasted growth in the EV sector. Justifying the optimism has been recent investments in North American infrastructure, which imply broader market expansion. Economically, it would make little sense to build charging stations without a reasonable belief in EV integration growth.
CHPT Stock Has Critics, but Bears Also Face Risks
As Investing pointed out, Benchmark’s argument underscores the potential it sees in ChargePoint’s integrated hardware and services offering. Should EVs become more mainstream, the company, over the long run, would be in a position to serve a burgeoning market. To that point, only 63% of all occupied housing units have a garage or carport. So, CHPT stock could fundamentally drive higher based on underlying necessity.
At the same time, ChargePoint faces serious criticisms. For investors, the company has failed to provide a plausible path to profitability. In the fiscal year that ended January 2023, ChargePoint posted a net loss of $345.1 million. On a trailing 12-month (TTM) basis, it posted a net loss of $441.5 million.
Unsurprisingly, the options flow screener for CHPT stock — which exclusively filters for big block transactions — shows a heavy volume of both bought puts and sold calls. To be fair, deciphering options dynamics can be tricky because seemingly “negative” options can also represent a form of insurance.
However, CHPT’s high short interest — which clocks in at 22.23% of its float — is less ambiguous. In order to initiate a short position, a trader must first borrow shares from a broker. If ChargePoint flies higher for whatever reason, the ensuing panic as traders look to cover their short positions could create a positive feedback loop.
Why It Matters
According to MarketBeat, CHPT stock features a consensus rating of hold. However, the average price target stands at $7.05, which implies a 258% swing higher from the current level. Nevertheless, one important point to recognize is that the consensus target has been fading consistently since 2021.
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.
