ChargePoint's (CHPT 0.79%) sales and margins have dropped off in recent quarters, and the electric vehicle (EV) charging company even announced layoffs recently to save money. ChargePoint disappointed the market yet again with its just-released fourth-quarter numbers, compelling several analysts to dial down their expectations. Yet, some still see a huge upside in the stock. RBC Capital analyst Chris Dendrinos is one of them.
While the analyst cut ChargePoint stock's price target to $3 per share from $3.50 on March 6 because of macroeconomic challenges, that still represents a solid 50% upside from the stock's previous day's closing price.
Does a potential 50% upside mean ChargePoint stock is a no-brainer buy now?
Key ChargePoint numbers you must know
ChargePoint's fourth-quarter revenue fell 24% to $116 million, gross margin dropped to 19% from 22%, and GAAP net loss widened 20% to $95 million, all year over year.
For the first quarter, ChargePoint projects a 19% year-over-year drop in revenue at the midpoint of its guidance range of $100 million to $110 million.
That doesn't sound encouraging, so why is Dendrinos still bullish about ChargePoint stock? It's primarily the company's planned strategic shift toward its software subscription business.
Is ChargePoint stock a buy now?
During its Q4 earnings conference call, ChargePoint stated that it plans to "double down" on developing its higher-margin software business. In Q4, while ChargePoint's networked charging systems revenue fell 39% year over year, its subscriptions revenue rose 30%.
A deeper dive into the numbers revealed something even bigger: While networked charging systems generated a gross margin of only 7% in Q4, subscriptions generated almost 40% margin.
ChargePoint, however, still has a lot to prove, and it's too early to believe that its strategy will work out given the intensifying competition and a lack of any niche in the EV charging industry. I'd stay on the sidelines on this stock for now.
