Shares of ChargePoint Holdings (CHPT 0.79%) soared as much as 16% this week, according to data from S&P Global Market Intelligence. The electric vehicle (EV) charging company climbed higher after the Federal Reserve announced it was keeping interest rates stable for the time being. ChargePoint -- along with a lot of renewable companies -- is an interest rate sensitive stock and has gotten beaten down with the Federal Reserve rapidly increasing the Federal Funds Rate in recent years. Even after this week's bump, shares of ChargePoint are down 94% from all-time highs and are down 78% year to date.
It is also possible that the high short interest had an effect on ChargePoint's stock price. As of the market close on Thursday, Nov. 2, ChargePoint stock is up 16.1% this week.
Stable interest rates and a potential short squeeze
This week, the Federal Reserve decided to keep the Federal Funds Rate flat, at least until its next policy meeting. The central bank has gone through the fastest rate hike cycle in history since the beginning of last year as it tries to combat high inflation in the United States.
How does this affect an EV charging stock like ChargePoint Holdings? Renewable energy projects are generally financed with debt, which is getting more expensive with interest rates skyrocketing. This lowers the value of the long-term cash flows of these projects, which is why a lot of the stocks have fallen in recent years (among other reasons). Investors may be taking the Federal Reserve's decision as a signal that this interest rate pain is finally ending.
The Federal Reserve's decision may have kick-started the stock price rise, but the high short interest added gasoline to the fire. ChargePoint Holdings has an estimated 32% short interest, which means 32% of its float has been loaned to short-sellers. This is much higher than the average stock. Once ChargePoint's stock started rising, it's possible that short-sellers began to repurchase their shares to close out their positions, further driving the stock higher in what is known as a short squeeze.
What's going on with ChargePoint's business?
Even if the interest rate pain is over, ChargePoint's business model looks flawed. The company makes most of its money selling EV charging stations, which have extremely low gross margins and don't come close to covering its overhead costs. Last quarter, the company posted an operating loss of $123 million on $151 million in revenue. It is on pace to run out of cash in a few quarters.
Even though revenue is growing quickly due to the government incentives for renewable energy businesses, ChargePoint has terrible unit economics and no path to profitability. Investors would be smart to avoid this stock unless this changes.
