ChargePoint (CHPT -7.33%) posted its latest earnings report on Dec. 1. For the third quarter of fiscal 2023, which ended on Oct. 31, the electric vehicle (EV) charging network operator's revenue rose 93% year over year to $125 million but still missed analysts' estimates by $7 million. Its net loss widened from $69 million to $84 million, or $0.25 per share, which also missed the consensus forecast by $0.02. On an adjusted basis, its net loss widened from $47 million to $56 million.

ChargePoint's stock slumped after that earnings miss and remains 75% below its all-time high from December 2020. But could it still be a compelling buy for investors who believe in the long-term potential of its EV charging networks?

A person charges an electric vehicle.

Image source: Getty Images.

Rapid growth and steep losses

ChargePoint sells EV charging stations to businesses, which either provide them to visiting customers or use them to charge their own vehicles. It also charges drivers subscription fees to access those stations. At the end of fiscal 2022, ChargePoint had installed over 174,000 charging ports, representing 64% growth from a year earlier. That figure rose 67% year over year in the first quarter of fiscal 2023, 70% in the second quarter, and 30% to over 210,000 ports in the third quarter.

ChargePoint's revenue rose 65% to $242 million in fiscal 2022, but its adjusted net loss widened from $178 million to $182 million. In the first nine months of fiscal 2023, its revenue surged 95% year over year to $315 million, but its adjusted net loss widened from $127 million to $188 million.

For the full year, ChargePoint expects its revenue to grow 96%-100% and for its adjusted operating expenses to rise 35%-40%. The midpoint of those estimates implies its adjusted operating expenses will consume 69% of its revenue in fiscal 2023, compared to 99% of its revenue in fiscal 2022.

Its gross margin is being squeezed

It's encouraging to see ChargePoint's growth in revenue finally outpace its operating expenses, but its gross margin is still declining. Its adjusted gross margin rose by a percentage point to 24% in fiscal 2022, but dropped 6 percentage points year over year to 18% in the first nine months of fiscal 2023 as it grappled with labor shortages, supply chain constraints, logistics disruptions, and new product launches.

ChargePoint's adjusted gross margin improved sequentially in the second and third quarters, and it expects that stabilization to continue in the fourth quarter. However, it still expects that metric to contract for the full year.

Its balance sheet is still a mess

ChargePoint won't turn profitable anytime soon, so investors should focus on its liquidity and debt to evaluate its financial stability. It ended the third quarter with just $188 million in cash and cash equivalents, down from $315 million at the end of fiscal 2022, while its high debt-to-equity ratio of 2 will make it tough to secure fresh funds at favorable rates.

Analysts expect ChargePoint's revenue to rise 99% to $481 million this year and grow 56% to $752 million in fiscal 2024. However, they expect its GAAP (generally accepted accounting principles) net loss to widen to $329 million this year and only narrow slightly to $253 million in fiscal 2024.

Investors might forgive those net losses in a low interest rate environment with plenty of liquidity. Unfortunately, interest rates have been rising and making it difficult to invest in unprofitable and highly leveraged companies like ChargePoint.

Its valuation is still unattractive

With an enterprise value of $4 billion, ChargePoint still trades at 5 times next year's sales. Tesla, which is firmly profitable and the bellwether of the EV market, also trades at 5 times next year's sales.

Therefore, ChargePoint might have lost three-quarters of its value over the past two years -- but it still can't be a considered a bargain yet. It might seem like a promising long-term play on the secular growth of the North American and European EV markets, but it still operates like a freewheeling start-up instead of a publicly traded company. Investors should avoid it until it stabilizes its gross margin and exercises better financial discipline.