Electric vehicle (EV) charging infrastructure stocks ChargePoint Holdings (CHPT +0.47%) and EVgo (EVGO 7.62%) have gotten caught up in the growth stock sell-off that has swept through the U.S. stock market. The Nasdaq is now in correction territory and is down 12% year to date. Similarly, many EV stocks, such as Rivian Automotive (NASDAQ: RIVN), fell over 30% in just the first three weeks of 2022.
Investors looking for pick-and-shovel plays in the EV industry may consider buying the dip in ChargePoint or EVgo. Here's the case for each.
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Stick with an industry leader during tough times
Daniel Foelber (ChargePoint): ChargePoint, as a company, is set to finish its fiscal year 2022 on Jan. 31 with record-high sales and a strong gross margin. But ChargePoint, the stock, is down 70% from its all-time high and reached its new 52-week low on Friday.
ChargePoint stock's sell-off has undoubtedly been fueled by broader market volatility that has shown no mercy toward unprofitable growth stocks that depend on low interest rates to fuel their developing businesses. Despite its revenue growth, ChargePoint is unlikely to turn a profit for years. Management has repeatedly stated its focus on growing market share, trusting that profits will come in the future.
It's a similar approach that electric car companies like Tesla, Lucid Group (NASDAQ: LCID), and Rivian are taking. The difference is that Lucid and Rivian have massive cash positions on their balance sheets, while ChargePoint needs to continue borrowing money or risk diluting its stock at a much lower price, a decision that would probably upset existing shareholders.
Zooming out and looking at the big picture, ChargePoint looks to be a good candidate to buy the dip, even if the market sell-off persists. Its growth depends on overall EV adoption, not the success or failure of a particular automaker. As the industry leader in Level 2 charging and a rapidly growing DC-fast-charging portfolio, ChargePoint is the best EV infrastructure stock to buy now.
EVgo has plenty of room to grow
Howard Smith (EVgo): Like most EV charging network companies, EVgo garnered much investor interest when the infrastructure bill passed last fall. Its shares spiked in November from momentum related to that federal spending bill along with announcements that the company would be expanding partnerships with both General Motors (GM +3.35%) and Uber Technologies (UBER +8.64%).
After the company announced plans to go public through a special purpose acquisition company (SPAC) merger one year ago, shares of the associated blank-check company soared. That came amid general investor exuberance with basically anything related to electric vehicles. EVgo began trading as its own entity last July, and its shares retreated along with many in the sector.
But EVgo stock shot up again in November 2021, giving the company a market cap of more than $5 billion when it announced it would build upon its agreement with GM with plans to increase its deployment of DC fast-charging stations by an additional 20%. At the same time, it reported an expansion to its EV charging program for drivers on Uber's platform. Investors responded by more than doubling EVgo's share price in just a month.
Since then, share prices have moved down again along with many other stocks in the high-growth tech sector. The stock is now near all-time lows, but the business momentum hasn't changed. EVgo announced its third-quarter 2021 revenue grew 29% sequentially over the second quarter. It raised its full-year 2021 guidance for revenue, earnings before interest, taxes, depreciation, and amortization (EBITDA), and charging network power throughput at that time.
Like many early-stage EV companies, EVgo has a valuation that doesn't fit its current business metrics right now. Investors are counting on a huge tailwind coming from overall EV adoption to grow the business, making the stock very speculative at this stage. But with its partnership ties to GM and Uber, EVgo's business should grow as those companies build their EV fleets. With a market cap of just over $2 billion right now, if EVgo builds its network as those large companies build their offerings, it could have a bright future.
Take advantage of fear
Just like raging bull markets can lead to valuations outpacing fundamentals, so too can steep sell-offs lead to exaggerated discounts in appealing companies. ChargePoint and EVgo are two high-risk, high-reward EV stocks that are worth buying on sale now. That being said, investors should bear in mind that it could take years for the investment thesis in either company to come to fruition.
