Anyone investing in the electric vehicle (EV) sector has to expect volatility. Most of these companies are building for the future, and aren't yet profitable. April was a bad month for the market in general, as the S&P 500 dropped 8.8%. But more volatile, and risky, growth names like EV charging network company ChargePoint Holdings (CHPT -1.38%) dropped much, much more.
ChargePoint stock is down nearly 30% year to date, and April was a big part of that decline. Shares plunged 34.9% for the month, according to data provided by S&P Global Market Intelligence.
ChargePoint had one newsworthy item that may have contributed to the overall market pessimism for the stock in April. The company announced, and closed, a deal to raise $300 million in additional financing. The company raised the money through the sale of convertible notes to funds advised and managed by private investment firm Antara Capital.
While the deal seems to be on favorable terms for ChargePoint, it will still dilute existing shareholders, and that typically leads to a drop in the stock. Another factor in the stock's reaction is that shares had recently run up prior to this announcement. ChargePoint shares had previously soared 37% in March.
The convertible notes aren't due until 2027, and carry an interest rate of just 3.5% if the company pays in cash. That rises to 5% if it pays in notes. Those are solid rates, and the notes convert at a share price of just over $24 per share. While that price represented a 30% premium to a weighted three-day average after the deal was announced, it now would be 78% above yesterday's closing price, making the deal look even better to existing shareholders.
ChargePoint likely got favorable terms because its underlying business has been performing well. The company beat its own guidance for revenue for its fiscal 2022 ended Jan. 31. Sales grew 65% over the prior year. And the company told investors to expect revenue to jump another 96% year over year at the midpoint of its fiscal 2023 guidance.
The company continues to expand both in the U.S. and Europe. In an agreement announced in April with the Colorado Energy Office, ChargePoint will install 20 fast-charging sites to create six highway corridors allowing residents to travel long distances across the state in an electric vehicle. The company completed the first of the six last month.
While the company expands, it also can look forward to further potential support from the funds allocated when President Joe Biden signed the infrastructure spending bill into law late last year. It calls for $5 billion to be spent to grow EV charging infrastructure in the U.S. As that money is doled out, and ChargePoint continues to grow partnerships, the April swoon in the share price could look like a good opportunity for investors.