Over the past month, ChargePoint (NYSE:CHPT) stock has been in freefall, but some may see opportunity with this latest price action. After all, with this EV power charging station technology company, which once traded for prices north of $40 per share, now changing hands for around $2.50 per share, surely the market has oversold it, right?
Not so fast. Yes, macro developments have resulted in poor performance for early-stage growth stocks like this one, but there is a very good company-specific reason investors have abandoned the stock, and why the short side of this trade has become very crowded.
Why CHPT Stock is Hitting New All-Time Lows
Despite ChargePoint’s poor performance, I can see why some may be bullish while the crowd is bearish. For one, it’s not as if this stock has received a spate of bearish analyst ratings lately.
In fact, quite the contrary. Since September, sell-side analysts from both RBC and UBS have initiated coverage on CHPT stock, issuing “Buy” or equivalent to “Buy” ratings on shares. It’s not as if there’s been a complete lack of positive news regarding ChargePoint, either.
As discussed last week, the company just recently announced that its rolling out Tesla (NASDAQ:TSLA) compatible chargers throughout its charging network, which is the largest in the United States. Yet while there has been this bit of positive news, a massive piece of negative news has significantly outweighed it. Hence, why above I referred to shares falling for a “very good reason.”
On Oct. 11, ChargePoint announced it has raised $232 million in new capital, through the sale/issuance of new shares. Following this news, CHPT’s downward decline has accelerated. The stock keeps hitting new all-time lows. Yes, this sell-off may soon ease. Shares could hit a short-term floor. However, if this happens, don’t assume it means the dust has settled.
Don’t Expect the Short Side to Soon Cover
The level of short interest with CHPT stock has creeped up in a big way. According to Fintel, on Dec. 30, 2022, around 18.13% of CHPT’s outstanding float was sold short.
Today, short interest stands at well over a quarter of outstanding float (nearly 28%). Not only that, short interest has sped up just in the past week, as it was at just 22.65% of float as recently as Oct. 23. It would be one thing if ChargePoint’s short interest was coming down after the capital raise news.
It’s another thing entirely that the “short side,” typically considered some to be the “smart money” among market participants, are increasing their bearish wagers. Sure, sometimes even the “smart money” can make unwise trading decisions, getting squeezed.
However, weighing the capital raise news against ChargePoint’s fundamentals, it makes sense why short interest is rising, not falling.
Reporting another quarter of heavy losses ($125.25 million) last quarter, ChargePoint needs to scale up in order to hit profitability.
Unfortunately, given that EV sales growth is slowing down, it’s becoming increasingly doubtful that ChargePoint will soon swing to profitability. Further disappointment, and more importantly, more dilutive fundraising, may be ahead.
Add in Other Red Flags and the Verdict is Clear
Besides the risk of ChargePoint needing to sell more shares once again down the road, further watering down returns for investors, there are some other red flags that should give any CHPT contrarian pause.
Competition in the EV charging station space is intense, with this company having to compete with not only other fledgling startups, but with Tesla’s own Supercharger network.
In addition, it’s not just been the company itself that’s been selling shares. Insider selling has been high as well. One ChargePoint director sold $13.4 million worth of shares in September.
Add it all together, and the verdict is clear. Stay away from CHPT stock. It may appear that you can buy today, and profit as shares recharge on improved sentiment, yet a closer look suggests you’ll just get zapped instead.
CHPT stock earns an F rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
