ChargePoint Shares Downgraded By Analysts (NYSE:CHPT) : Where Now?

In a recent assessment of the EV charging sector, Royal Bank of Canada (RBC) has recalibrated its investment outlook on ChargePoint Holdings, Inc. (NYSE: CHPT), a leading provider of electric vehicle (EV) charging networks and solutions. RBC analysts have downgraded ChargePoint from an “outperform” rating to “sector perform,” pointing to evolving market dynamics and internal challenges faced by the company.

The analysts have also revised their price target for ChargePoint stock, establishing a new mark at $3.00 per share. This adjustment reflects a cautious stance due to the company's recent performance and broader economic indicators that challenge its immediate growth prospects.

Consensus from 14 analysts have the ChargePoint price target at $3.30 with a buy rating held but it seems the mood is changing from more than one firm.

On Wednesday, analysts at Needham also revised their price target on the company's shares, bringing it down to $3 from the previous $4, albeit sustaining a Buy rating. ChargePoint shares are currently sitting at $1.95, down from the high at ~$46 that followed the launch of the stock on the market (post SPAC). Even with these respective downgrades in analyst forecasts, $3 reflects a very healthy upside from todays' value. The revised price target set is underpinned by a valuation metric taking into account a 12.5 times multiple of Needham's adjusted EBITDA forecast for ChargePoint by the year 2028, a figure which is then discounted back to present value terms.

This approach provides a long-term perspective on the company's financial health, factoring in a variety of future operational improvements and market conditions. Whether that is achievable or not is another thing, with sentiment so firm in the other direction currently.

Why The Downgrades?

The rationale behind the price target reduction reflects a broader concern within the EV industry. ChargePoint has indicated that the dampening demand for EV charging hardware can be primarily linked to the growing negative sentiment toward electric vehicle adoption. This sentiment stems from a range of challenges facing the industry, including supply chain obstacles, policy uncertainties, and a murky economic outlook.

In the near term, ChargePoint is bracing for further headwinds. The company anticipates two more challenging fiscal periods that lie ahead. More notably, there is prevailing uncertainty around the prospect of a return to growth in the tail end of the year, an outcome which the company has expressed hope for but has also acknowledged as uncertain.

Nevertheless, ChargePoint has not been solely on the back foot. The firm has managed to deliver ameliorated bottom-line figures, thanks to diligent margin and operational expense control strategies. Such measures have been a lifeline amidst the broader industry pressures, indicating the firm's ability to adapt and manage costs effectively even when revenue growth faces obstacles.

Looking to diversify and solidify its revenue streams, ChargePoint is pivoting with a greater emphasis on software services. This strategic move is inspired by the company's European operations, where there is a more prevalent practice of hardware dual sourcing. By increasing their software offerings, ChargePoint aims to create a more resilient and scalable business model that isn't as vulnerable to the volatilities of hardware sales.

How does the ChargePoint share price react?

ChargePoint's shares responded to these developments, opening at $2.00 on Wednesday, with a market capitalization of approximately $836.06 million. The price is currently almost 4% below the open, with the afternoon session to react.

Financial health metrics provide further insight into ChargePoint's standing, with the company reporting a debt-to-equity ratio of 0.72. Year-over-year, ChargePoint has experienced a revenue decrease of 12.0%, illustrating the fiscal hurdles that have prompted a more reserved outlook from analysts.

Despite these setbacks, institutional investors continue to hold a significant stake in the company, owning approximately 45.01% of ChargePoint’s stock. This level of institutional involvement showcases a degree of market confidence in the company’s strategic positioning and its role in the burgeoning EV infrastructure landscape.

Amid these results, there was notable insider trading activity; Michael D. Hughes, an insider at ChargePoint, sold 13,995 shares at an average price of $2.42. Such moves often draw investor attention as they can be indicative of internal sentiments regarding the company’s future valuation.

We and others interested in ChargePoint and the broader EV charging sector are now reassessing the company's positioning, taking note of the downgrades but not taking too much from them. In reality, these have likely been coming for a while but we are surely closer to the bottom than the top for CHPT.