Picks-and-shovels investments can be very rewarding. Buying the stock of the company who sells the basic equipment a booming industry needs can be lucrative. The problem arises when the industry fades. That is where ChargePoint Holdings (NASDAQ:CHPT) finds itself.
It is the leading provider of electric vehicle charging infrastructure but faces declining sales as demand for battery EVs gives way to consumer preference for hybrids. A public charging network is less critical if you can use gas to where you want to get to and charge up later. ChargePoint stock reflects the decline, down 71% over the past year.
Yet for the EV industry to thrive, it is essential for ChargePoint to succeed. For investors seeking a deeply discounted play on the EV industry’s turnaround, ChargePoint stock could be the bet to make.
An EV Industry in Flux
Arguably, the reversal is happening now. Although hybrid EVs are still ascendant, the leading electric vehicle manufacturers had a much better than expected second quarter. Deliveries were stronger than forecast.
Lucid Group (NASDAQ:LCID), for example, reported a 70% increase year-over-year, Tesla (NASDAQ:TSLA) deliveries beat analyst expectations and Rivian Automotive (NASDAQ:RIVN) reported a 1% sequential rise despite closing its manufacturing facility for part of the quarter to retrofit it for future growth.
In contrast, ChargePoint’s fiscal first quarter reflected the EV industry’s malaise. Sales were down 18% year-over-year to $107 million. While that was 1% better than Wall Street’s expectations, it is not expecting a pick up either in the near future.
ChargePoint lowered second-quarter revenue guidance from a range of $150 million to $165 million to $108 million and $113 million.
However, a little further out and things perk up. ChargePoint reiterated its goal of achieving positive non-GAAP adjusted EBITDA for the full fiscal year.
ChargePoint stock responded, doubling off its April low and sitting 1% above where it started 2024.
Focusing on Profitability First
The charging station maker is changing direction. In an effort to prioritize profitability over growth, ChargePoint is pivoting towards software development, which carries higher profit margins, while deemphasizing hardware development.
The company has announced several important partnerships over the past few months that should meaningfully lower operating costs while improving its bottom line. It ought to move it a long way towards its adjusted profit goals initially.
In February, ChargePoint partnered with AcBel Polytech to co-design charging hardware. It will allow ChargePoint to bring products to market faster at lower cost, including for itself.
It subsequently signed a second agreement with Wistron NeWeb for additional hardware co-development while also joining forces with LG Electronics for its advanced EV charging hardware.
Taken together, ChargePoint is allowing others to do the investing in the hardware side of the business, giving it the freedom to pursue the software side.
ChargePoint Stock is Worth a Look
Currently ChargePoint offers hardware and software that is bundled together. You can’t buy one without the other. For existing installations it makes its network more sticky because of the high switching costs. Yet it also makes it more expensive for customers to buy and that could hold back ChargePoint’s growth.
But farming out hardware development and letting ChargePoint develop the software, and letting customers buy one or the other, ought to boost sales and greatly benefit the bottom line.
While there likely won’t be an immediate benefit, ChargePoint stock investors should begin to see topline growth begin to pickup with incremental improvements in margins.
Of course, ChargePoint doesn’t exist in a vacuum. While it is the charging infrastructure industry leader with approximately 35,000 stations and 63,300 ports, Tesla’s network of 7,000 locations and 36,000 ports has a higher public profile.
Blink Charging (NASDAQ:BLNK) has over 94,000 charging ports, but that is globally. Its U.S. footprint is much smaller. EVgo (NASDAQ:EVGO) has 1,000 locations.
What it points to is ChargePoint stock being attractively priced. ChargePoint can expand profitably by delegating hardware development to others while producing higher-margin software. For investors looking for a low-priced entry point into an EV industry that could see a turnaround, ChargePoint stock is your ticket in.
On the date of publication, Rich Duprey 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
