ChargePoint (CHPT 0.79%) became the world's first publicly traded electric vehicle (EV) charging network company after it merged with a special purpose acquisition company (SPAC) on March 1, 2021.
ChargePoint closed at $30.11 on its first day but now trades at about $3. Like many other SPAC-backed EV companies, it lost its luster as its growth cooled off, it racked up ugly losses, and its bubbly valuations popped due to rising interest rates.
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ChargePoint's revenue surged 94% to $468 million in fiscal 2023 (which ended this January), but its adjusted net loss widened from $186 million to $236 million. It expects its revenue to rise only about 32% in fiscal 2024 as it continues to bleed red ink. ChargePoint might seem like a bargain at 2 times this year's sales, but it isn't out of the woods yet. Let's review three red flags that still make it a risky investment.
1. The EV market is cooling off
ChargePoint builds EV charging stations for businesses, which can either provide them to visiting customers or use them to charge their own EVs. It charges individual drivers subscription fees to access those stations. It ended the second quarter of fiscal 2024 with 225,000 active ports under management. About two-thirds of its ports are located in North America, while the remaining third is in Europe.
ChargePoint's business isn't well insulated from the macro headwinds. Consumers and businesses will both likely delay their purchases of EVs and EV charging stations, respectively, until the economic environment improves.
Back in July, Cox Automotive warned that the production of new EVs in the U.S. was outpacing the market's demand. Cox also said several top automakers in the U.S. were already sitting on over 90 days of unsold EV inventories. The European EV market is also cooling off as the Russo-Ukrainian war drags on and governments rein in their incentives.
As ChargePoint's core EV markets slow, private businesses will become reluctant to install new charging stations. During ChargePoint's latest conference call in September, CEO Pasquale Romano admitted that many potential customers were still sitting in a "hesitant macroeconomic environment" with "restricted" spending policies.
2. Its balance sheet isn't pretty
ChargePoint insists it can turn profitable on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis by the fourth quarter of calendar 2024 (which lines up with the third and fourth quarters of fiscal 2024).
But it still racked up a net loss of $205 million in the first half of fiscal 2024 on a generally accepted accounting principles (GAAP) basis. That's not a promising situation for a company that ended its second quarter with only $233 million in cash and equivalents and $793 million in total liabilities.
It secured a new $150 million revolving credit facility back in late July to broaden its safety net. However, its high debt-to-equity ratio of 2.9 could make raising more cash at favorable rates difficult.
ChargePoint recently extended the maturity of some of its convertible notes by a year (from 2027 to 2028) at higher interest rates with lower conversion prices. It also raised an additional $232 million through an at-the-market stock offering to further strengthen its balance sheet.
That stock offering won't increase its leverage, but it will cause significant dilution for a company with an enterprise value of only $1.4 billion. I believe all that red ink, high leverage, and imminent dilution will make ChargePoint an unappealing stock to own as long as interest rates stay elevated.
3. Its insiders are heading for the exits
During ChargePoint's last conference call, Pasquale Romano said he remained confident in the company's future because the "conversion of the world's vehicle fleet to EVs remains inevitable, as does the need for infrastructure to charge them." Yet, over the past 12 months, ChargePoint's insiders have sold 10 times as many shares as they bought. Over the past three months, they dumped 7 times as many shares as they bought. That's not a good look for a stock that has already lost nearly three-quarters of its value over the past 12 months.
The bears are still right
ChargePoint is still growing and won't go bankrupt anytime soon, but in this unforgiving market, its stock could easily get cut in half again before it's considered a screaming bargain. So, even if you're bullish on ChargePoint's long-term growth potential, I'd wait for a significant market pullback before loading up on this speculative EV stock.
