The bull case for electric vehicles (EVs) is plainly obvious. The shift toward electrification is on. For investors in the EV charging solutions company ChargePoint (CHPT), now could prove to be one of the most exciting times to invest in such a company.
Of course, another word for excitement is volatility. Indeed, the extent to which ChargePoint sees momentum to the upside or downside really depends on the market’s view of this company’s prospects. That’s where many bulls and bears differ greatly.
Currently, I’m neutral on ChargePoint stock. Let’s dive into what the bull and bear case on ChargePoint stock is right now.
Challenges Faced by Electric Vehicle Charging Companies
As the number of EVs rises, the requirement for electric vehicle charging infrastructure seems to be obvious. The prices of various EV stocks increased dramatically in 2020. In 2021, valuations surged into January, before the recent slump took hold.
It’s easy to think about ChargePoint stock as one that’s lost more than half its value over the past year. That’s true. However, this is also a company that remains well over its 2020 SPAC IPO price. Accordingly, for long-term investors who got in early, ChargePoint stock has still been a win.
That said, there’s a reason why ChargePoint stock has been on the decline, for the most part, this last year. Concerns around where consumers charge their vehicles have taken hold. It’s estimated that approximately 80% of vehicle charging is done at home. Accordingly, ChargePoint and its competitors are battling the reality that market share for this segment will likely be restricted to the portion of the market engaging in longer-distance drives.
ChargePoint will continue to battle competitors coming out with home charging networks. Stiff competition in this space remains another key headwind for all companies.
Given the fact that this sector is not yet profitable, some fundamental investors may simply choose to invest elsewhere. That is, until ChargePoint and its competitors can remain consistently profitable.
Unique Business Models of EV Charging Companies
The above-discussed factors indeed do make the EV charging companies look particularly risky. However, they should be given credit for trying to conquer this emerging market through their innovative business models.
ChargePoint produces revenue mainly from commercial customers such as commercial buildings, hotels, universities, and offices. It typically offers facilities for EV charging as a perk to its tenants, visitors, and employees.
The company is also focused on the electrification of large fleets. These include those operated by shared mobility providers like Uber Technologies (UBER) and Lyft (LYFT) and logistics companies such as FedEx (FDX). ChargePoint also sells chargers to residential and commercial customers. The company also extends servicing of the installed equipment.
The Positives to Look At
Now, for the bull case.
ChargePoint is a leader in the EV charging space. While existing size isn’t an indication ChargePoint will be a leader in the future, it’s a good starting point. Building an expansive network is expensive. Accordingly, competitors looking to get into this space will need to invest heavily. These sorts of barriers to entry are good for existing players.
Additionally, EV charging growth is only expected to accelerate. Currently, ChargePoint claims that someone plugs into its network every two seconds. That’s incredible. Any acceleration of growth from this starting point will be something to behold.
Furthermore, ChargePoint boasts some rather impressive customers. This isn’t a company that peddles its products to the low-end mom-and-pop shops. ChargePoint chargers can be found at some of the biggest names in business, from Target (TGT) to Chevron (CVX), General Motors (GM), and PepsiCo (PEP).
This company is the leader in terms of market share in North America, and its expansions in Europe are in full swing.
CHPT stock has been on the decline for months now. Despite this, the company’s management team has made robust growth projections over the upcoming half-decade. It is expecting revenue of $2.07 billion in 2026.
If everything goes as planned, ChargePoint’s adjusted earnings before interest, depreciation, amortization, and taxes are anticipated to turn positive in 2024.
Wall Street’s Take
Turning to Wall Street, ChargePoint Holdings earns a Moderate Buy consensus rating. Out of nine analyst ratings, there have been six Buys and three Holds assigned in the past three months.
The average ChargePoint price target of $30.22 implies 66.8% upside potential. Analyst price targets range from a high of $37 per share to a low of $24 per share.
Bottom Line
There’s certainly reason to be bullish on ChargePoint and the EV charging space in general. Much of the growth in the EV space overall will come from the infrastructure side of the equation. While Tesla may be the sexy play in this space, ChargePoint will be the quiet provider that makes this sector happen.
That said, ChargePoint’s ability to hit its financial targets remains up in the air. Many investors may need to see tangible progress toward profitability before jumping in. That makes sense to me.
Right now, it’s probably okay to be on the fence with this stock. Investors don’t need to pick a side on every stock. That said, ChargePoint will be a company worth watching, particularly if the company makes some big strides on the margin front.
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Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.
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