You may hear all kinds of forecasts about ChargePoint (NYSE:CHPT), but prudent investors should stick to the facts and avoid the fallacies. The smartest move right now is to consider the perspectives that Wall Street’s experts have to offer but then use the data to form an educated assessment of ChargePoint. All in all, I am bearish on CHPT stock after reviewing the company and observing analysts’ positive and negative arguments.
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Headquartered in California, ChargePoint has built out an electric vehicle (EV) charging network that’s still growing. Far from being a “Magnificent Seven” company, ChargePoint is still a relatively small business, with a market cap of $1.14 billion.
If you anticipate that the build-out of the EV industry will require many more charging stations, you may be tempted to buy CHPT stock right now. However, after reviewing the company’s essential facts, eager stock traders will surely think twice about investing in ChargePoint.
ChargePoint’s Margin Problem
ChargePoint has been a consistently unprofitable company, so no one should expect ChargePoint’s margins to be stellar. Nonetheless, the company’s press release for the third quarter of Fiscal Year 2024 revealed some facts that may startle you even if you had low expectations.
On a year-over-year basis, ChargePoint’s GAAP gross margin fell from a positive 18% to -22%, a 40 percentage-point drop, and the company’s non-GAAP gross margin dropped from 20% to -18%. The company blamed a $42 million “inventory impairment charge,” which was “taken to address supply overruns related to product transitions and to better align inventory with current demand.”
According to TheFly, Evercore ISI analysts claim that ChargePoint has “several levers” to improve its gross margins. These analysts assigned an Outperform rating to CHPT stock, along with a $6 price target. The Evercore ISI analysts previously gave the stock a $17 price target, but after a steep drop in the ChargePoint share price, they practically had no choice except to lower their expectations.
I agree with the Evercore ISI analysts that the electrification of mobility is a “mega theme” and that ChargePoint enjoys a first-mover (or at least an early-mover) advantage. Still, for me, at least, the proof will be in the execution. ChargePoint still needs to pull whatever “levers” are available in order to improve its gross margins. As the old saying goes, seeing is believing.
Furthermore, ChargePoint is in a transitional period, as the company is changing its CEO. Sure, change can bring improvement, but CHPT stock has clearly lost its charge in 2023. Only time will tell whether new leadership will spur a successful turnaround for ChargePoint. For the time being, it’s wise to wait for evidence instead of buying shares now and hoping for the best.
ChargePoint: Demand Results, Not Excuses
You’ve now heard ChargePoint’s excuse for the company’s poor margin results. Meanwhile, some investors might offer the United Auto Workers (UAW) strike as an excuse for ChargePoint’s revenue decline. Yet, investors should demand results from ChargePoint and quit accepting excuses.
Here’s the scoop. In Q3 FY2024, ChargePoint’s revenue declined to $110.283 million, versus $125.341 million in the year-earlier quarter. During that same time frame, ChargePoint’s cost of revenue jumped from $102.66 million to $134.229 million.
Clearly, ChargePoint’s financials are moving in the wrong direction. After ChargePoint released its quarterly report, B. Riley analysts downgraded CHPT stock from Buy to Neutral and cut their price target on the shares in half from $5 to just $2.50. Frankly, I don’t blame the B. Riley analysts for doing this.
In a similar vein, Citigroup (NYSE:C) analysts slashed their price target from $8.25 to $2.40 and maintained their Neutral rating on ChargePoint stock. Meanwhile, Goldman Sachs (NYSE:GS) analyst Mark Delaney reiterated his Neutral rating on CHPT stock and assigned the shares a $2.50 price target.
Delaney expressed his concern that “competition and mix shift could limit margin improvement” (there’s the margin issue coming up again) and added that “the stock could be range-bound until investors gain more visibility into the longer-term earnings and FCF of the business.”
Investors have visibility into ChargePoint’s bottom line right now, though, and it’s not a positive picture. Alarmingly, the company’s net loss ballooned from $84.48 million in the year-earlier quarter to $158.219 million in Q3 FY2024.
Is CHPT Stock a Buy, According to Analysts?
On TipRanks, CHPT comes in as a Moderate Buy based on six Buys and 12 Hold ratings assigned by analysts in the past three months. The average ChargePoint stock price target is $3.28, implying 21.7% upside potential.
Conclusion: Should You Consider CHPT Stock?
As you can see, analysts have varying opinions on ChargePoint. They’ve had to lower their price targets on ChargePoint stock because it fell so much this year. As the company changes its CEO, the future remains uncertain.
CHPT stock might recover, but I’m leaning bearish on it until there are data-driven reasons to feel otherwise. So, investors can certainly monitor ChargePoint’s facts and figures and hope for improvement, but for the time being, I’m not considering a share position in ChargePoint.
