As far as EV charging stocks go, ChargePoint (CHPT) has garnered most of the attention of late, and for good reason.
After all, there’s massive political support for growth in EV charging stations in the U.S. The announcement that Biden hopes to have half a million charging stations in the U.S. in short order is great for the leading EV charging company in America. Accordingly, this favorable political environment has likely more than been priced into CHPT stock today. (See ChargePoint stock analysis on TipRanks)
Indeed, ChargePoint is the industry leader in level 2 charging in North America and Europe. The company’s 132,000 charging locations in these key competitive continents speaks to ChargePoint’s dominance in this growth sector. ChargePoint’s current market share of roughly 70% of the networked level 2 charging market in North America makes this the pre-eminent play for those bullish on the growing need for EV infrastructure globally.
Furthermore, one key selling point behind ChargePoint is related to the company’s IP and the fact that it manufactures and uses its own proprietary technology. For those who believe charging stations will be largely a separate industry altogether from EV companies (though Tesla (TSLA) is playing in this space in a big way), ChargePoint looks like the way to play this space. It’s a pure-play on long-term growth in a sector that has legs.
Let’s dive into why investors may want to press pause on getting too bullish on this stock.
Competition and Long-Term Margin Concerns Not Priced In Yet
When many investors think of EV charging plays, they’re often looked to (and valued) more like growth/tech stocks. In reality, there’s reason to think of EV charging plays more like gas stations. Or, more accurately, the gas stations of the future.
As most investors know, the gas station business can be a good one in which to invest. A favorite stock of many investors right now is Alimentation Couche-Tard (ANCUF).
However, these businesses have historically low margins on fuel. The explanation for this is simple: extremely high levels of competition in a sector selling a ubiquitous commodity. Indeed, gasoline really isn’t any different than electricity – the price is set at the market (or regulatory) rate, and those selling this product are price-takers.
Accordingly, companies like ChargePoint may become the convenience store purveyors of the future. That’s how companies like Couche-Tard have produced their impressive margins and long-term growth profile.
Still, selling charging stations to commercial clients as its primary line of business doesn’t scream “profitable long-term growth strategy.” At least, not to those with a long enough investing time horizon to consider how this company will realistically make money once EV charging stations are installed everywhere.
Indeed, competition is heating up, and heating up quickly, in this space. ChargePoint will need to combat the rising insurgence of Blink (BLNK), Nuvve (NVVE), and three other EV charging players looking to go public via the following SPACS: Tortiose Acquisition II (SNPR), Climate Change Crisis Real Impact I (CLII), TPG Pace Beneficial Finance (TPGY).
ChargePoint isn’t the only game in town. Investors know this. Nevertheless, this company’s share price certainly looks to be valued as if ChargePoint will hold this market share lead forever. Indeed, investors may want to check that thesis right now.
What Analysts Are Saying About CHPT Stock
According to TipRanks’ analyst rating consensus, CHPT stock comes in as a Moderate Buy. Out of 2 analyst ratings, there are 1 Buy and 1 Hold recommendations.
As for price targets, the average analyst ChargePoint price target is $33.50. Analyst price targets range from a low of $28.00 per share to a high of $39.00 per share.
Investors should be thinking about EV charging stock as the gas stations of the future. Questions such as how ChargePoint will earn growing cash flows on selling a commodity are really the correct questions to be asking right now.
Installations of EV charging stations are certainly likely to skyrocket over the near-term. However, for those with a longer-term vision for this sector, it can be difficult to see the value in owning ChargePoint stock right now.
Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.