Every investor should be familiar with current events and have at the very least a general idea of global trends and phenomena. Having this basic knowledge can lead to some pretty lucrative investments in the long run. If back in the early 2000’s you witnessed the rise of the internet and the E-commerce market, you would have invested in Amazon. If you’d have witnessed the surge in demand for home improvement materials at the height of the Covid-19 pandemic, you’d have invested in Lowes. In either case, you’d be fairly rich.
Some people think Bitcoin is where the future is headed, others say the colonization of Mars – it’s impossible to know for sure.
In this article we will be discussing a specific stock in the booming electric vehicle charging industry- ChargePoint (Symbol: CHPT) - and why it should be on your radar as a potential star investment in the long term.
Chargepoint Stock in 2022
If there’s one thing the current conflict between Russia and Ukraine has taught us, it’s that we are highly dependent on crude oil, which is refined to make gasoline. Russia is the third-largest producer of crude oil in the world, after the U.S. and Saudi Arabia. The sanctions the US and other countries have placed on Russia hindered their ability to sell crude oil, and President Biden has even placed a ban on all oil imports to the US hoping to cripple the Russian economy.
It turns out your high school economics teacher was right- a negative shock to supply leads to an increase in price - this is what the world is experiencing right now, and the high oil price is simply passed from oil companies to consumers at the gas pump.
If there’s one group of people who are happy in the world, it’s the people who purchased electric vehicles and are not significantly impacted by the sudden spike in gas prices. Electric vehicles are fueled from the electrical current supplied by the electrical grid and delivered to the car’s AC/DC converter which charges the battery- and there’s no direct reliance on oil.
My prediction is that this conflict will significantly increase the already growing consumer demand for electric vehicles in the long run. People are not happy with the dramatic and sudden increase in gas prices. Not to mention how they are the more environmentally-friendly method of transportation, as EVs produce zero emissions while running. I understand that today Teslas are expensive, but as technology makes EVs cheaper with time, we will likely see a steady increase of more affordable, sustainable, and glamourous electric vehicles on the road.
As we transition to this new way of travel, an EV charging station infrastructure will need to be built to support and charge the new fleet of vehicles, whether it be at home, in a parking lot, or by a public charging station. It’s worthwhile to note that none of the EV charging station companies are profitable yet, as investment and R&D costs are still running high in the industry. Therefore, in this article, we will analyze ChargePoint and see if it’s a worthwhile investment in the long run.
ChargePoint Stock: Competitors, Corporate Strategy, and Products
There’s no question that the EV charging industry has its fair share of competition. Some of ChargePoint’s competitors include Blink Charging (A recent article comparing BLNK vs CHPT is available here), EVgo, and Volterio, among several others. What makes ChargePoint stand out is its tremendous 45% global market share of level 2 charging stations, which take about 3-8 hours for a full charge.
ChargePoint has a slightly different strategy than its competitors, which has enabled them to increase market share and rapidly expand its network. The bulk of their revenue is from hardware sales to businesses, individuals, government entities, etc. In such sales, they do not receive any revenue from the actual charging process, as opposed to Blink Charging, a company that owns and operates most of their charging stations- and would generate revenue from the charging process. This detaches ChargePoint’s dependence on the utilization of their product and gives businesses and consumers alike the freedom as to how and where to implement the charging station.
In addition to hardware sales, ChargePoint also generates revenue from a cloud-based SaaS subscription platform to businesses in exchange for a monthly fee. The subscriptions allow the owner advanced access controls, graphical dashboards analytics, power management software, and the option for drivers to reserve charging ports. Business owners are naturally incentivized to purchase the subscription plan since it enhances the user experience, and ChargePoint capitalizes on this product with high-profit margins.
The company currently has 118,000 active ports and stands to benefit from a recently passed infrastructure bill which includes $7.5 billion to expand EV charging stations. With such promising potential, what do its financials look like?
Chargepoint Stock Evaluation
A strong indicator of potential is ChargePoint’s revenue performance since it went public in March of 2021. As you can see from the graph, the company revenue has grown from $40 million to $80.67 million – doubling, in effect- between March and December of 2021. This is a good indicator that the company is successfully expanding its consumer base while grabbing the market share it is looking for before it can turn a profit.
The company has most recently collaborated with Mercedes-Benz by developing an application known as “Mercedes me Charge”, launched in June 2021.
The app allows users to find, use, and pay for a charging session, all from within the access of their smartphone. It works by indicating the precise position, current availability, and price at the selected charging station. By empowering drivers to charge when, where, and how they want with seamless access to ChargePoint’s EV charging network, this collaboration has produced an industry-leading charging experience.
Chargepoint Balance Sheet
What’s interesting to note about ChargePoint’s balance sheet is its change in cash flow from investing activities. The negative cash flow means that ChargePoint is spending more cash on investment activities than generating cash from investment activities. Since going public, the company has had significant amounts of cash being invested in the long-term health of the company, such as Research and Development.
Holding ChargePoint stock will not produce any dividends - the company is still growing rapidly and wants to invest as much as possible into further growth. Companies pay dividends usually to thank shareholders by sharing profit and incentivize them to continue holding the stock- but in ChargePoint’s case, there still is no profit to dole and long-term shareholders hope to get compensated by a potential surge in stock price with time.
CHPT Free Cash Flow
Since going public, ChargePoint’s free cash flow has been in a downtrend, going from – 1 million to – 52 million. Companies with negative free cash flow tend to be riskier investments, as they still have yet to generate enough net income to cover their operating expenses. This further emphasizes the sentiment shareholders believe that ChargePoint will be able to recuperate its current losses with time.
CHPT Stock Forecast
For the full fiscal year ending January 31, 2023, ChargePoint expects revenue of $450 million to $500 million. This represents an almost 100% increase from its most recent yearly revenue of $243 million for the fiscal year ending January 31, 2021.
CHPT Stock: Buy or Sell?
Fast forward 100 years from now, and you will likely see many more electric vehicles and charging stations on the road than there are today, as evidenced by the rapid growth of the EV market. According to Yahoo Finance, "The electric vehicle market was valued at 171.26 billion in 2020, and is expected to reach a value of USD 725.14 billion by 2026, registering a CAGR of around 27.19% during the forecast period (2021-2026)".
There are still risks associated with ChargePoint, which mainly stem from competition or commoditization. If more and more charging station companies saturate the market with better technology than ChargePoint, profits will decrease, and the stock may not surge as much as people expect. As of today, the technology is still developing and a lot of uncertainty is still attached to the industry.
As we have seen from both the macroeconomic and fundamental analysis, there is great potential attached to ChargePoint stock. It will take some time before we see ChargePoint produce positive net income, but as technology improves and profit margins increase, I see an electrified future for this company.
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