Electric Vehicle (EV) charging technology solutions provider ChargePoint Holdings, Inc. (CHPT) reported disappointing results for its third quarter of fiscal 2023 ended October 31, 2022. The company’s gross margin was 18%, down from 25% in the prior-year quarter, primarily due to supply chain disruptions and increased new product introduction and transition costs.
During the quarter, CHPT’s net loss worsened by 21.7% from the year-ago value to $84.48 million, while its net loss per share widened by 19.5% year-over-year to $0.25.
Despite its disappointing financials, CHPT is trading at a premium to its industry peers. In terms of forward EV/Sales, the stock is trading at 8.53x, which is 366.2% higher than the 1.83x industry average. Also, its forward Price/Sales multiple of 8.70x is 513% higher than the 1.42x industry average. Likewise, its 3.43x forward Price/Book is 57.7% higher than the 2.63x industry average.
While solid demand for EV charging solutions and favorable government regulations remain tailwinds, CHPT is expected to struggle significantly in the upcoming quarters. The stock’s deteriorating financials and premium valuation make investors and analysts bearish about its prospects.
On December 23, 2022, Kashy Harrison, an analyst at Piper Sandler, reduced the price target on the stock from $16 to $13. Also, on December 5, DA Davidson analyst Matt Summerville lowered his price target from $20 to $18.
Shares of CHPT have plunged 27.6% over the past six months and 15.4% over the past year to close the last trading session at $12.22. The stock is currently trading 41.8% below its 52-week high of $20.99, which it hit on April 4, 2022.
Here is what could shape CHPT’s performance in the near term:
Weak Financials
CHPT’s revenue increased 92.7% year-over-year to $125.34 million in the fiscal 2023 third quarter ended October 31, 2022. However, its total operating expenses grew 30.2% year-over-year to $105.96 million. The company’s loss from operations worsened by 27.5% from the prior-year period to $83.28 million.
In addition, the company’s net loss came in at 84.48 million, widening 21.7% year-over-year, while its net loss per share worsened by 19.1% from the prior-year period to $0.25. Also, as of October 31, 2022, its total liabilities stood at $661.99 million, compared to $308.88 million as of January 31, 2022.
Unfavorable Analyst Estimates
Analysts expect CHPT’s revenue for the fiscal 2023 fourth quarter (ended January 2023) to come in at $165.14 million, indicating an increase of 104.7% year-over-year. However, the company is expected to report a loss per share of $0.15 for the same period.
Furthermore, analysts expect CHPT’s loss per share for the fiscal year 2023 to widen 16.3% year-over-year to $0.71. Also, the company’s loss per share for the same period is expected to come in at $0.52.
Poor Profitability
CHPT’s trailing-12-month gross profit margin of 17.85% is 38.5% lower than the industry average of 29.03%. And its trailing-12-month EBITDA margin of negative 79.28% compares to the industry average of 13.17%. In addition, its trailing-12-month net income margin of negative 82.76% compares to the 6.36% industry average.
Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of negative 70.69%, 33.28%, and 32.64% compare with the industry averages of 13.99%, 6.80%, and 5.20%, respectively. Moreover, its trailing-12-month asset turnover ratio of 0.41x is 48.1% lower than the industry average of 0.80x.
POWR Ratings Reflect Bleak Prospects
CHPT has an overall F rating, translating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CHPT has an F grade for Value, in sync with its higher-than-industry valuation. In addition, it has an F grade for Stability. The stock’s 24-month beta of 1.79 justifies the Stability grade.
The stock also has a D grade for Quality, consistent with its low profitability.
CHPT is ranked #80 out of 91 stocks in the Industrial-Equipment industry.
Beyond what I have stated above, we have also given CHPT grades Sentiment, Growth, and Momentum. Get all CHPT ratings here.
Bottom Line
CHPT reported disappointing results for the third quarter of fiscal 2023. Moreover, analysts expect the company to incur huge losses for at least the next two fiscal years. Despite solid demand and supportive government regulations, CHPT will likely struggle to stay afloat as it suffers from material inflation, stiff competition, and supply chain constraints.
Amid an uncertain macro environment due to the Fed’s aggressive rate hikes and growing fears of a potential recession, the stock is expected to decline further. So, given its deteriorating financials, bleak growth prospects, low profitability, and premium valuation, we think this stock is best avoided now.
Stocks to Consider Instead of ChargePoint Holdings, Inc. (CHPT)
The odds of CHPT outperforming in the weeks and months ahead are greatly compromised. However, there are many industry peers with impressive POWR Ratings. So, consider these three A-rated (Strong Buy) stocks from the Industrial-Equipment industry instead:
Belden Inc. (BDC)
Standex International Corporation (SXI)
LSI Industries Inc. (LYTS).
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CHPT shares were unchanged in premarket trading Monday. Year-to-date, CHPT has gained 28.23%, versus a 6.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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