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ChargePoint Holdings Stock: This Flash Charge Won’t Last (NYSE:CHPT)

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Investment thesis

ChargePoint Holdings, Inc. (NYSE: CHPT) has obviously rallied over the past few weeks, due to the $7.5 billion Inflation Reduction Act provision and the company’s excellent Q2 earnings/forecast calls for 2023. The company has demonstrated excellent supply chain management by achieving stellar 35.65% QoQ revenue growth, although strong demand continues to expand its final backlog by 26% QoQ. CHPT also saw a strong increase in future recurring subscription revenue of 7% QoQ and 74.83% YoY. Thus pointing to the sustainability of consumer demand despite the deterioration of the macroeconomics, since new customers also represent more than 30% of its FQ2’23 billings. Impressive.

Additionally, CHPT is expanding its global capabilities, with a particular focus on the EU, driving sales growth of 11% QoQ and 254% YoY to $17.3m in the latest quarter. which then represented 16% of its income. With the EU aggressively banning the sale of ICE cars by 2035, we expect to see a huge boom in the region’s charging network over the next decade. Accordingly, to ensure the growth of CHPT’s turnover and results in the future.

CHPT continues to grow at all costs, avoiding profitability for now

CHPT Revenue, Net Income, Net Income Margin and Gross Margin

S&P Capital IQ

In the second quarter of 2023, CHPT reported revenue of $108.3 million and gross margins of 16.8%, an increase of 93.04% but a decrease of -2.4 percentage points year-on-year, respectively, the latter being attributed to higher component and logistics costs. The company also reported deteriorating profitability, with net income of -92.7 million dollars and net profit margins of -85.6% last quarter. It indicates a year-on-year decline of -9.18%, although a moderation of 65.7 percentage points, respectively.

Impressive growth in all segments

Impressive growth in all segments

Looking for Alpha

In the meantime, CHPT has seen impressive growth across all verticals, with its networked systems recording revenue growth of 41.3% QoQ/ 205.87% YoY and subscriptions of 14.72% QoQ/ 67, 55% YoY. Commercial billings also improved by an impressive 45% QoQ and 83% YoY, particularly in the EU, with 24% QoQ and 300% YoY growth in the commercial vertical. Additionally, residential billings are up 11% quarter-over-quarter and 125% year-over-year, despite supply chain constraints so far.

CHPT operating expenses

S&P Capital IQ

Its unprofitability is, again, attributed to CHPT’s high operating expenses of $108.6 million in FQ2’23, representing a 27.76% YoY increase and 300.83% compared to FQ2’19 levels. It’s no wonder, therefore, that its growing expense-to-sales ratio remains insufficient, accounting for 104% of its revenue and 597.9% of its gross profit last quarter.

CHPT Long-term debt, interest expense, net fixed assets and Capex

S&P Capital IQ

For now, CHPT’s long-term debt remains stable compared to last quarter at $294.3M with interest charges of $2.9M in Q2’23. These debts would also not mature until 2027, giving the company more liquidity during the deterioration of the macroeconomic situation.

In the meantime, CHPT continues to expand its presence by 11.67% YoY to $59.3M in PPE net assets, with growth of 7% YoQ and 70% YoY for reach 200,000 installed bases in network ports by FQ2’23. Beyond the 60,000 ports managed in the EU, the company has also teamed up with several global partners to improve its roaming reach to over 335,000 ports worldwide to date. Combined with capital spending of $5.7 million last quarter and the huge boost from Biden’s Cut Inflation Act, we expect to see accelerated future expansion.

Cash/equivalents CHPT, FCF and FCF margins

S&P Capital IQ

Therefore, it is only natural that CHPT has yet to report positive free cash flow (or FCF) generation so far, with an FCF of -68.5 million and an FCF margin of -63. .3% at FQ2’23. It represented a decline of -250.91% and -14.6 percentage points year-on-year, respectively. Given its shrinking cash and cash equivalents of $188.1 million and its lack of profitability, it is likely that the company can still rely on more short-term debt. We will see.

Projected CHPT Revenue and Net Income

S&P Capital IQ

Over the next five years, CHPT is expected to record revenue growth at an impressive CAGR of 55.92%, while posting net profitability of $58 million by fiscal 2026. The company may also record margins net beneficiaries by 6.44% by FY2027, which is a significant improvement over current levels.

For fiscal year 2023, the consensus estimates that CHPT will record revenue of $481 million and net revenue of -$257 million, which represents a considerable annual growth of 211.55%, but a decline of -94, 34%, respectively. Given the huge boost from the new regulations, we expect to see a nice upward reassessment of its revenue growth going forward, with management guiding FQ3’23 revenue up to $135 million. dollars, indicating excellent growth of 24.65% QoQ.

For now, the company continues to grow at all costs, justifying its aggressive cash burn over the next few years, helped considerably by the insatiable demand for electric vehicles reported by several automakers. Ford (F), General Motors (GM) and Tesla (TSLA) continue to report massive back orders worth billions through 2023, despite rising inflation and high prices. As a result, this signifies the massive growth in electric vehicle charging to come, as the US electric vehicle market grows tremendously from $28.04 billion in 2021 to $137.4 billion in 2028 with a CAGR by 25.4%.

In the meantime, we encourage you to read our previous article on CHPT which would help you better understand its market position and opportunities.

  • ChargePoint: the hidden ace of the electric vehicle war

So, is CHPT Stock a buySell ​​or Keep?

CHPT 2Y EV/Revenues and P/E Valuations

CHPT 2Y EV/Revenues and P/E Valuations

S&P Capital IQ

CHPT is currently trading at an EV/NTM Income of 8.68x and an NTM P/E of -24.60x, below its 2-year EV/Income average of 21.06x, although it has improved significantly from compared to its 2-year P/E average of -47.20x. The stock is also trading at $16.21, down -43.55% from its 52-week high at $28.72, but with a 90.7% premium to its low. 52 weeks at $8.50. Consensus estimates remain bullish on CHPT’s outlook, given their price target of $28.67 and a 74.39% upside from current prices.

CHPT share price 2 years

CHPT share price 2 years

Looking for Alpha

Nonetheless, due to its impressive FQ2’23 earnings call, CHPT stock is also trading at a premium, above its historical 50-day moving average of $15.45. We expect the Fed’s 75 basis point interest rate hike to moderately digest this rally over the next week, driving its valuation to a more minimal level, with the S&P 500 index already plunging by – 20.99% since the beginning of the year.

We continue to iterate on our price target of $10 or $11 as a safer entry point for investment and long-term growth, due to its historic support pattern. It will come as the time of peak pain is still unlikely here, with the Fed expected to aggressively raise interest rates through November/December 2022 and 2023. Patience for now, as we don’t expect see another rally like in the early 2021s, due to minimal short-term positive catalysts.