What happened
ChargePoint Holdings (CHPT -1.43%) stock jumped Wednesday morning and was up a whopping 11.1% at its highest point of the session before cooling off a bit. As of 2:10 p.m. ET though, the electric vehicle (EV) charging stock was still up 6.7%.
The fiscal first-quarter numbers it reported three months ago may have disappointed the market, but expectations among investors and analysts alike are strong ahead of its fiscal second-quarter earnings release.
So what
After doubling its revenue in its fiscal first quarter, which ended April 30, ChargePoint forecast roughly 80% year-over-year revenue growth for its Q2. The company, however, has consistently beaten sales estimates for some quarters now. Analysts are betting that pattern will continue when ChargePoint releases its numbers on Aug. 31.
JP Morgan analyst Bill Peterson just raised his price target on ChargePoint stock from $18 to $20. Although he expects the company's margins to remain under pressure this year due to high inflation, Peterson foresees stronger revenue growth from the company in the third quarter and full year as supply constraints ease.
Peterson also pointed out that the Inflation Reduction Act that President Joe Biden recently signed into law will provide added impetus to the growth of the EV industry. The Act offers significant tax credits to people who buy qualifying EVs, and is therefore expected to boost the industry and benefit large players in it -- among them, ChargePoint. Investors reacted positively to the upgrade and drove the stock higher.
Earlier in the week, analyst Ryan Greenwald of Bank of America also bumped up his price target on ChargePoint stock to $15.50 per share from $14 a share, in part due to the improved growth prospects the company will enjoy thanks to the Inflation Reduction Act. Greenwald also expects ChargePoint to beat its sales estimates again when it reports next week.
Now what
With more than 188,000 active EV charging ports deployed as of April 30, ChargePoint has an enviable foothold in the high-potential EV charging space. Yet even though the company's top line is growing at breakneck speed, investors are becoming increasingly impatient as its bottom-line losses mount. In its fiscal first quarter, ChargePoint's gross margin dipped to 15% from 23% and it swung to a steep loss versus a profit in the year-ago quarter.
Long story short, even if ChargePoint beats top-line estimates next week and reiterates its guidance for 96% revenue growth at the midpoint for the full year, if it also falters on margins, those who are buying the stock now solely on speculation that it will beat earnings could face disappointment.
