Shares of electric vehicle (EV) charging equipment provider Blink Charging (NASDAQ:BLNK) have zoomed upward by 1,790% year-to-date as of this writing. Growing enthusiasm for electric vehicles combined with the number of new charging stations Blink installed during the year made investors exuberant about the company's prospects. But in the wake of that remarkable rise, is this stock still a buy?

Blink's growth in 2020

Blink Charging provides EV charging equipment and owns and operates charging stations for electric vehicles. In some cases, the company owns the stations, where it undertakes everything from installation to maintenance and keeps the bulk of all the revenue generated. In other cases, Blink only operates the stations, handling things such as monitoring, management, and payment processing, through its cloud-based system. In those cases, the installation costs are borne by property owners, who keep a share of the revenue generated.

Backside of a bearded man in red shirt standing and looking at a growing graph on blue background.

Image source: Getty Images.

At the end of the third quarter, Blink Charging owned or operated 15,716 charging stations, up from 14,778 as of the end of 2019. The company's revenue in the first nine months of 2020 rose 84% year-over-year. Though that looks promising, it is worth noting that it was over a low base of just $2.1 million of revenue in the first nine months of 2019. The company's net loss in Q3 stood at $3.9 million and for the first nine months of 2020, it reported losses of $9.9 million.

BLNK Revenue (Quarterly) Chart

BLNK Revenue (Quarterly) data by YCharts

Blink Charging currently funds its operations through debt and equity financing. It hasn't achieved profitability yet, and it also doesn't seem to have a plan or target date for reaching that objective.

Growth potential

Considering the growth in the number of electric vehicles on the road and the number of new models on the way, the need for additional EV-charging equipment and networks looks obvious. According to BloombergNEF, there could be 116 million EVs on road by 2030. Moreover, it expects more than half of new cars sold will be electric vehicles by 2040. As such, Blink Charging appears poised to benefit both from new equipment sales as well as from recurring revenues from the stations it owns. However, the company's growth path isn't really as rosy as those buying the stock seem to believe.

The market for EV charging equipment is highly competitive. To cater to the needs of cost-conscious customers, several small companies offer basic chargers for home as well as commercial locations. Further, in the higher-end segment, companies such as ChargePoint and EVgo compete directly with Blink Charging. ChargePoint could be a particularly significant rival, considering that it plans to go public via special-purpose acquisition company (SPAC) Switchback Energy Acquisition.

Finally, Tesla, which currently offers charging services only to Tesla vehicles, could widen its scope. Overall, Blink Charging's competitors could have access to substantially more financial resources than it does.

In addition, the market for EV charging equipment is expected to be highly commoditized, with thin margins, which would make Blink Charging's road toward profitability even more of an uphill climb.

Looking ahead

Blink Charging should continue adding stations to its network. However, investors can anticipate that the stock price will remain volatile. The stock's spectacular rise in 2020 has been driven more by enthusiasm and momentum than the company's fundamentals. It will likely remain so in 2021.

Based on the size of its potential market and how the company's operations have grown so far, this small-cap stock has at least some chance of succeeding. However, given its price-to-sales ratio of 220, now isn't exactly a great time to open a new position.

For that reason, I would watch this stock only from the sidelines until such time as the company offers investors a look at a concrete plan for how and when it aims to reach profitability, or until the stock price falls back to a level that better matches its current operational performance.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.