ChargePoint (CHPT 0.79%) disappointed a lot of investors after it went public by merging with a special purpose acquisition company (SPAC) in March 2021. It initially impressed the bulls with the expansion of its electric vehicle (EV) charging networks, but it lost its luster as its growth slowed down, it racked up steep losses, and rising interest rates popped its bubbly valuations.
ChargePoint's stock closed at $30.11 on its first day as a public company, and it eventually rose to a post-merger high of $35.69 on June 29, 2021. But today, the stock trades at about $2. It also plummeted 35% on Nov. 17 in response to a triple whammy of bad news. Let's review those three red flags to see if it's finally time to pull the plug on ChargePoint's stock.
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1. The sudden departures of its CEO and CFO
First and foremost, ChargePoint's CEO Pasquale Romano and CFO Rex Jackson were abruptly replaced without any clear explanations from the board. ChargePoint's chief operating officer Rick Wilmer immediately succeeded Romano, who had led the company since 2011. Mansi Khetani, ChargePoint's senior VP of financial planning and analysis, will replace Jackson -- who had held the CFO position since 2018 -- as the interim CFO until a permanent CFO can be appointed.
Those sudden leadership changes, along with the fact that its insiders sold more than 10 times as many shares as they bought over the past 12 months, don't inspire much confidence in a quick turnaround.
2. ChargePoint expects Q3 revenue to miss expectations
ChargePoint will post its full report for the third quarter of fiscal 2024 (which ended on Oct. 31) on Dec. 6. But it recently provided a preliminary glimpse into that upcoming report -- and the numbers were deeply disappointing.
It expects its revenue to decline 10%-14% year over year, compared to its prior outlook for 20%-32% growth. It blamed that slowdown -- which would mark its first year-over-year revenue decline as a public company -- on the weakness of its core North American and European markets. In a statement, Rick Wilmer said "overall macroeconomic conditions, along with fleet and commercial vehicle delivery delays," reduced its deployments to "government, auto dealership and workplace customers."
ChargePoint's revenue had risen 65% in fiscal 2022 and surged 94% in fiscal 2023, and analysts had originally expected 34% growth in fiscal 2024. Unfortunately, its sudden guidance cut for the third quarter suggests those estimates are too high.
3. ChargePoint saw an unexpected impairment charge
To streamline its business as its growth cools off, ChargePoint will take a non-cash impairment charge of $42 million in the third quarter as it focuses on "product transitions" and better aligns its current inventories with "current demand."
It expects that charge to reduce its adjusted gross margin to negative 17%-19% in the third quarter, compared to positive adjusted gross margins of 3% in the second quarter and 20% in the year-ago quarter. That would also represent the first time its quarterly adjusted gross margin turned negative since its public debut.
On the bright side, ChargePoint reiterated its goal of turning profitable on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by the fourth quarter of calendar 2024 (which would mainly line up with the fourth quarter of its fiscal 2025). Therefore, its gross margins might recover after its new management optimizes the business.
Is it time to give up on ChargePoint?
With an enterprise value of $800 million, ChargePoint looks cheap at less than 2 times its trailing sales. It established a first mover's advantage in the EV charging network space, and it's still far ahead of its competitors -- which include Tesla, Blink, and EVgo -- in terms of total charging stations.
But ChargePoint's near-term growth is also stalling out, it's still deeply unprofitable on a generally accepted accounting principles (GAAP) basis, and it ended the second quarter with a high debt-to-equity ratio of 2.9. Its management changes and persistent insider sales also suggest it isn't the right time to bet on its turnaround. So for the time being, I think it's smarter to avoid ChargePoint and stick with more promising EV stocks instead.
