The electric vehicle (EV) industry has been getting absolutely crushed as Wall Street wastes no time discarding unprofitable growth stocks in favor of value stocks and dividend stocks that can outlast a prolonged bear market. ChargePoint Holdings (CHPT 0.79%) and Volta (VLTA) are both down big off their highs despite favorable trends that signal EV adoption is growing faster than ever.
For example, the International Energy Agency released a report saying that 6.6 million EVs were sold in 2021, triple the 2.2 million sold in 2019. And even after that growth, EVs sales make up less than 9% of total global car sales.
Here's why ChargePoint and Volta are two stocks worth considering now for investors that believe EVs will continue taking market share from internal combustion engine (ICE) vehicles in the coming decades.
Image source: Getty Images.
ChargePoint has key advantages in a commoditized industry
Daniel Foelber (ChargePoint): ChargePoint stock rose just under 7% on March 3 in response to a strong Q4 and full fiscal 2022 earnings report and blowout guidance. The company grew revenue by 65% in fiscal 2022 compared to fiscal 2021, but expects revenue to increase by 86% to 106% in fiscal 2023 to between $450 million and $500 million.
Leading up to the report, it wouldn't have been surprising if ChargePoint's revenue growth slowed and it began reducing its spending to preserve cash and get through the supply chain challenge. But ChargePoint is doing the opposite. Management said fiscal 2023 is going to be its biggest year yet, with rapid port expansions and huge research and development investments as ChargePoint seizes as much market share as it can as quickly as possible.
ChargePoint's ultra-aggressive strategy is centered around building value adds in a commoditized industry. Like gas stations, it isn't easy for EV charging companies to differentiate themselves from their competitors. Instead, ChargePoint thinks the best way to grow over time is by operating at the lowest cost and by creating several different ways to engage customers. Over 50% of Fortune 500 companies are ChargePoint customers. And by expanding its business units in commercial, fleet, and residential across Europe and North America, ChargePoint believes that many companies will simply choose ChargePoint as their sole partner.
Landing and retaining big multinational clients would be a boon for ChargePoint's long-term growth. But it's also important that the company expands its product offerings too. 11,500 of ChargePoint's 174,000 network ports are DC fast charging, which is a big increase from just a few thousand less than a year ago.
The beauty of ChargePoint is how simple of an investment thesis it is. If you believe that the best way to become the industry leader is to rapidly expand now in the hopes that EV adoption will lead to long-term profitability, then ChargePoint could be the stock for you. If you prefer to see growing profit margins and better capital preservation, then ChargePoint is probably way too risky.
On earnings call after earnings call, management has indicated it is going big or going home. Investors likely appreciate the transparent messaging as it makes it clear what the investment entails and the risks involved.
Volta offers a different niche and better valuation
Howard Smith (Volta): ChargePoint is a fine pick for an EV charging investment as the leader in the sector. But Volta is differentiating itself in a crowded field by focusing on a unique niche. Volta offers charging stations that are sponsored by businesses or municipalities and double as advertising platforms using digital displays as large as 55 inches.
Volta's chargers are spread across the U.S. in 23 different states, concentrated in high-density areas. They are placed where consumers spend time shopping, making the digital ads attractive for local businesses to drive additional commerce. Last month, the company announced a new partnership with Walgreens to install 1,000 DC fast charging stalls at 500 of its stores.
Image source: Volta Charging.
Luke Kigel, vice president of Walgreen's media, expanded on the benefits of the charging stalls for the retailer, saying:
"Volta's electric chargers allow Walgreens to seamlessly bring customers unique advertising and convenience experiences with eye-catching screens and quick, convenient charging to match their behavior, all while helping to build healthier communities through reducing vehicle emissions."
The strategy seems to be catching on quickly. Volta grew revenue 82% year-over-year in the first nine months of 2021 vs. 2020. And based on the midpoint of its predicted revenue range for full-year 2021, it sees a 162% sequential quarter-over-quarter revenue jump for the fourth quarter.
Based on that 2021 guidance, Volta is valued at a price-to-sales (P/S) ratio of 18, or about 10% below ChargePoint's valuation using 2021 financial results. Volta is also expanding in Europe, having recently added customers in Switzerland, Germany, and France.
Investors will learn more about the company's forward outlook when it reports its final 2021 results on March 21. Volta should continue to grow revenue quickly, with its P/S ratio expected to drop to below 7, according to data by YCharts. That gives investors the advantage of buying a charging network company at a better valuation than many peers, and with a unique product differentiation.
Two compelling long-term investments
Despite their long-term potential, both ChargePoint and Volta remain unproven, high-risk, high-reward investments that could slow down or even fail for a number of factors outside their control. Reduced federal support, increased competition, and prolonged cash burn could stunt growth, or even force the companies into unfavorable capital raises.
However, there has arguably never been a better time to invest in the EV charging industry than right now. Wall Street is too preoccupied with short-term factors to notice the monster growth in demand for EV charging. It's a trend that is still likely in the first few innings as EV adoption has only begun to accelerate.
