The widespread market sell-off has created a lot of potential buying opportunities for long-term investors. But pulling the trigger when the market just seems to keep going down is easier said than done. In hindsight, it is obvious to go back to the post-dot-com bubble burst, the 2008-09 financial crisis, the fourth-quarter 2018 bear market, or the COVID-19 crash of spring 2020 and say they were great times to buy. But in real-time -- especially when volatility is high -- it's often never "easy" to hit the buy button.
The electric vehicle (EV) industry has seen significant drawdowns across all the major automotive stocks. Similarly, EV charging companies have sold off. ChargePoint Holdings (CHPT -0.79%) now has a market cap of $5 billion. The growth stock had a market cap of around $11 billion at its peak. Here's why ChargePoint stands out as a top stock for risk-tolerant investors to consider now.
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Blowing expectations out of the water
Leading up to ChargePoint's Q4 and full-year fiscal 2022 earnings call on March 2, ChargePoint remained my favorite EV charging stock. But I was skeptical of its ability to retain its high growth rate in future years and the toll that supply chain constraints would have on its business. ChargePoint is feeling the pain of inflation and supply chain challenges as it is spending more money than ever before. However, ChargePoint not only exceeded its full-year fiscal 2022 revenue guidance -- growing revenue by 65% -- but is also guiding for revenue of $450 million to $500 million in fiscal 2023, representing a 96% year-over-year growth at the midpoint.
This growth rate is rapidly compressing ChargePoint's price-to-sales (P/S) ratio -- which was around 65 at the high. Now, ChargePoint's forward P/S ratio is closer to 10 or 11. And if its stock price stays down and revenue growth continues, ChargePoint could quickly look far less expensive than it does today.
Vertical integration
ChargePoint's revenue growth rate is eye-catching. But what's arguably even more impressive is the way in which it is growing revenue. ChargePoint's residential, commercial, and fleet business units are all rapidly expanding. Out of ChargePoint's 174,000 ports, 29% are in Europe, and 7% are DC fast-charging units.
ChargePoint is sacrificing short-term profitability for what it expects to be a massive market opportunity in the coming decades. It is grabbing as much market share as possible to position itself so that when EV adoption hits full throttle, it is ready to capture customers. ChargePoint believes its customers want to work with one charging provider. And if ChargePoint has the most ports across North America and Europe, it stands a better chance to work with multinational companies and receive government support.
It's a bold strategy that could give ChargePoint a big advantage over its competition. But it also leaves the company vulnerable to risks.
Business risks
Unlike the EV industry, where customers choose vehicles based on brand, cost, quality, safety, and other factors, EV charging is a commoditized industry that is subject to price risk. Like gas stations, it is often the company with the lowest price that wins. ChargePoint thinks it can offer the best value with scale and offerings that fill different customer needs. However, the company could very well get undercut by the competition, potentially straining its margins even as the demand for EV charging grows.
A pick-and-shovel play worth considering now
Even with its bullish outlook and lower stock price, ChargePoint remains an unproven, expensive, high-risk, high-reward play in the EV space. But for investors who are confident in the long-term growth of EV adoption, ChargePoint could very well be one of the best options out there. Unlike automotive stocks, ChargePoint can succeed along with the general tailwinds of the EV industry.
ChargePoint's revenue growth rate is impressive and might be going unnoticed by Wall Street, given its lack of appetite for growth stocks right now. Patient investors with a multi-decade time horizon could consider scooping up a few shares of ChargePoint now.
