ChargePoint Holdings Inc. (CHPT) in Campbell, Calif., made its stock market debut on March 01, 2021, through an SPAC merger. The company provides hardware, software, and services portfolios for commercial, fleet, and residential consumers. Although  the company's shares have gained 27.5% in price over the past month, the stock has slumped 43.8% over the past nine months and 23.5% over the past six months to close yesterday's trading session at $17.47.

In terms of trailing-12-months Price/Book, the stock is currently trading at 4.56x, which is 81.8% higher than the 2.51x industry average. Also, its 10.90x forward EV/Sales multiple is 537.5% higher than the 1.71x industry average. Furthermore, CHPT's 12.15x forward Price/Sales is 771.1% higher than the 1.39x industry average.

Although the EV industry's market potential is immense, with strong competitors generating higher profit margins and revenues, CHPT may struggle to compete. Furthermore, the stock's premium valuation and lackluster financials may make investors skeptical about its near-term prospects.

Click here to checkout our Electric Vehicle Industry Report for 2022

Here is what could shape CHPT's performance in the near term:

Increasing Competition

With multiple manufacturers investing extensively in EV charging solutions, coupled with rising government support for growing EV charging infrastructure, competition in the EV industry is heating up. With strong rivalry among the leading players and smaller pure-play EV charging providers, several lesser-known companies are struggling to stay afloat. Therefore, we think CHPT's negative profit margins and inadequate financial performance may cause its shares to retreat further.

Negative bottom line

CHPT's total revenue increased 90.3% year-over-year to $80.68 million for its fiscal fourth quarter, ended Jan. 31, 2021. Its operating loss grew 126.9% from the prior-year quarter to $80.17 million. The company's net loss came in at $60.48 million, while its loss per share amounted to $0.23. In addition, its net cash used in operating activities increased 71.1% for the year ended Jan. 31, 2022, to $157.17 million.

Poor Profitability

CHPT's 22.03% trailing-12-months gross profit margin is 24.5% lower than the 29.2% industry average. Also, its ROA, ROC, and net income margin are negative 18.1%, 34.9%, and 79.8%, respectively. And  its trailing-12-month cash from operations stood at negative $130.01 million compared to its $210.80 million industry average.

POWR Ratings Reflect Uncertainty

CHPT has an overall F rating, which equates to a Strong Sell in our proprietary 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 Stability and Value. The stock’s 1.86  beta is consistent with its Stability grade. In addition, the stock's higher-than-industry valuation is in sync with the Value grade.

The company also has a D for Quality which is justified given its weak financials and poor profitability.

Among the 92 stocks in the C-rated Industrial – Equipment industry, CHPT is ranked #84.

Beyond what I have stated above, you can view CHPT ratings for Growth, Sentiment, and Momentum here.

Click here to check out our Industrial Sector Report for 2022

Bottom Line

CHPT's lofty valuation and weak profitability have been a cause of concern for investors as the EV charging market becomes increasingly competitive. In addition, analysts expect its EPS to remain negative in its fiscal 2023 and 2024. Therefore, we believe the stock is best avoided now.

How Does ChargePoint Holdings Inc. (CHPT) Stack Up Against its Peers?

While CHPT has an overall F rating, one might want to consider its industry peers, Preformed Line Products Company (PLPC), Standex International Corporation (SXI), and Applied Industrial Technologies Inc. (AIT), which has an overall A (Strong Buy) rating.

Click here to checkout our Electric Vehicle Industry Report for 2022

CHPT shares were trading at $17.36 per share on Thursday morning, down $0.11 (-0.63%). Year-to-date, CHPT has declined -8.87%, versus a -10.94% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

More...