ChargePoint Stock: Buy, Sell, or Hold?

ChargePoint (NYSE: CHPT), a leading builder of electric vehicle (EV) charging stations, went public by merging with a special purpose acquisition company (SPAC) in March 2021. It opened at $32.30 per share on its first day, but it now trades at about $1.

ChargePoint's stock plummeted as macroeconomic and competitive headwinds curbed its growth. Rising interest rates also highlighted its ugly losses and crushed its valuations. So should investors buy, sell, or hold this out-of-favor EV infrastructure stock today?

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Image source: Getty Images.

Understanding ChargePoint's business

ChargePoint builds EV charging stations for residential and commercial customers. At the end of its latest quarter, it directly managed 329,000 charging ports in North America and Europe, and it now serves around 80% of the Fortune 500 companies.

ChargePoint established an early mover's advantage in the EV charging market when it was founded 18 years ago, but it now faces intense competition from Tesla's (NASDAQ: TSLA) Superchargers, which are now compatible with more third-party vehicles; and smaller challengers like EVgo (NASDAQ: EVGO).

ChargePoint grew rapidly in fiscal 2022 and fiscal 2023 (which ended in January 2023) as the EV market began recovering from the pandemic, but its growth slowed to a crawl over the past two years as rising interest rates chilled the market. It also remained unprofitable on a generally accepted accounting principles (GAAP) basis as its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) stayed negative.

Data source: ChargePoint. YOY = Year-over-year.

For fiscal 2025, ChargePoint expects its revenue to decline 17% to 19%. Analysts expect its revenue to dip 18% to $416 million, but they also expect the company to narrow its GAAP net loss to $270 million as its adjusted EBITDA improves to negative $127 million.

The reasons to sell or avoid ChargePoint's stock

ChargePoint is the largest EV charging station company in North America and Europe, but most of its network still runs on older Level 2 AC chargers, which can take four to five hours to fully charge a vehicle. By comparison, the newer Level 3 DC chargers can charge a vehicle up to 80% in about 20 to 40 minutes. Tesla's Superchargers and most of EVgo's charging stalls use Level 3 DC chargers. Level 2 chargers are cheaper to use and better suited for homes and offices, but they're not practical for longer trips. So to keep pace with the competition, ChargePoint is deploying fewer higher-margin AC chargers and more lower-margin DC chargers -- and it expects that product mix shift to compress its near-term gross margin.

Prior to going public, ChargePoint claimed its adjusted EBITDA would turn positive by fiscal 2025. But it clearly missed that target, even after it repeatedly trimmed its workforce, and analysts don't expect that metric to turn green until fiscal 2027.

ChargePoint has also increased its number of outstanding shares by 59% since its public debut to cover its stock-based compensation and secondary offerings. That dilution could continue as it tries to expand its lower-margin fast-charging network in this tepid EV market, which is being throttled by elevated interest rates.

The reasons to buy or hold ChargePoint's stock

ChargePoint faces a lot of near-term challenges, but analysts still expect its revenue to grow at a compound annual rate of 7% from fiscal 2024 to fiscal 2027 as the macro environment stabilizes, the EV market warms up again, and it expands its Level 3 charging network. Its partnership with General Motors (NYSE: GM), which directs its EVs to ChargePoint and EVgo's networks, could generate even more tailwinds.

Analysts also expect ChargePoint to grow its higher-margin subscription services while transferring more of its manufacturing to Asia to offset the pressure from its shift from AC to DC chargers. It also won't run out of cash anytime soon: It still held $220 million in cash and equivalents in its latest quarter, it won't face any debt maturities until 2028, and it hasn't drawn a single dollar from its $150 million revolving credit facility yet.

With an enterprise value of $562 million, ChargePoint stock trades at just 1.4 times this year's sales. That low valuation should limit its downside potential, even if it struggles to grow its sales over the next few quarters. That might be why its insiders actually bought 26 times as many shares as they sold over the past three months.

So is it the right time to buy, sell, or hold ChargePoint's stock?

I wouldn't sell ChargePoint's stock at these depressed levels, but I don't think it's the right time to buy it either -- especially when its smaller rival EVgo is growing faster and trading at lower valuations. So for now, it's still smarter to either hold ChargePoint if you already own it, or wait for more green shoots to appear before starting a new position.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.