CHPT - ChargePoint: Q2 Earnings Stock Hits New Lows; Better To Avoid

2023-09-07 09:00:16 ET

Summary

• ChargePoint Holdings Inc. stock hits a new low after posting disappointing Q2 results and forward outlook.
• The company's Q2 revenue of $150M is lower than analysts' estimates, and its adjusted EBITDA of -$81.2M is worse than projections.
• ChargePoint's impairment charges, leading to a lower gross margin, raise questions about its ability to achieve profitability and scale sustainably.
• I make the case for why long-only investors shouldn't be involved with CHPT. There are other ways to partake in the EV transformation.
• Avoiding CHPT stock could prove to be wise.

ChargePoint Q2 Earnings Results

ChargePoint Holdings, Inc. (CHPT) stock hit another low after-market as it posted its fiscal second-quarter or FQ2'24 earnings release . As such, sellers forced CHPT below its August 2023 lows, taking out a new level as buyers fled.

However, the downward pressure on CHPT shouldn't be surprising, as it remains firmly in a medium- and long-term downtrend. The company's disappointing Q2 scorecard and forward outlook gave little reason for buyers to return aggressively. Moreover, CHPT's "C+" valuation grade by Seeking Alpha Quant suggests no valuation dislocation relative to its peers, bolstering potentially aggressive dip-buying.

ChargePoint posted revenue of $150M in Q2, up 39% YoY, lower than analysts' estimates of a 41% uptick. It also delivered an adjusted EBITDA of -$81.2M, much worse than analysts' projections of -$43.5M. ChargePoint's Q2 performance was impacted by a significant inventory impairment charge, taking a toll on its gross margin. As such, ChargePoint reported an adjusted gross margin of 3%, way below last year's 19% metric. On a GAAP basis, gross margin was 1% for FQ2, although excluding the impairment charges, it would have been closer to 25%, in line with what the company reported in FQ1.

ChargePoint attributed the impairment charges to "legacy supply chain-related costs and supply overruns on a specific DC product." In addition, the company also reflected an additional " 3 points of headwind in gross margin resulting from selling this first-generation product at the pre-impairment cost structure."

At this point, questions must be asked about whether investors have confidence in the company's guidance in committing to its CY24 profitability goals. Accordingly, ChargePoint reaffirmed its guidance in achieving adjusted EBITDA profitability exiting CY24. Pre-earnings analysts' estimates align with the company's outlook, expecting ChargePoint to deliver adjusted EBITDA profitability in FY26 (calendar year ending January 2026).

The company highlighted that the impairment headwinds aren't expected to be structural, as it guided toward a fiscal third-quarter midpoint adjusted gross margin of 23.5%. Moreover, the company's adjusted operating expenses ratio is expected to fall further through the end of the fiscal year (FY24) as it reins in spending.

Despite that, I assessed that management hasn't provided sufficient confidence that ChargePoint can scale sustainably despite its optimistic outlook on the growth of EVs in the US and Europe. Despite being the AC-charging leader in the US, ChargePoint remains a nascent player in the fast-charging market dominated by Tesla (TSLA). Moreover, the impending entries of the legacy OEMs in vertically integrating their supply chain could place more pressure on ChargePoint's scaling effect, taking more hits on its profitability ramp. Therefore, the reminder from Q2's disappointment suggests that while ChargePoint is still expected to scale rapidly, profitability remains elusive and could be delayed further due to unanticipated charges like the one we experienced.

Is CHPT Stock A Buy?

Furthermore, as discussed earlier, CHPT isn't priced at a discount, which could improve its appeal. Moreover, it remains a short-seller favorite, with a short interest as a percentage of float reaching nearly 25% as of mid-August. Given the steep plunge in CHPT stock over the past year (about 65%), bearish investors have a substantial buffer to deal with dip buyers looking to reverse CHPT's downward momentum. And it doesn't look good.

CHPT remains mired in a clear downtrend. Therefore, the "right" way to profit from such setups is to play on the short side when CHPT's momentum gets rejected at critical resistance zones. As such, I anticipate short-covering taking place post-earnings, bringing CHPT's price action back closer to the $8 zone subsequently before astute short-sellers potentially reload.

Buyers looking to buy CHPT's dips over the past year have had little success (if they held on firmly) as sellers kept forcing lower lows. Short sellers have betted profitably against a company that has not demonstrated a clear path toward profitability.

As such, I caution long-only investors to avoid such setups and be ready to play the long/short side nimbly by assessing CHPT's price action if they want to partake. The trend remains firmly in favor of short-sellers until a more constructive consolidation suggests buyers could return.

However, looking at the way ChargePoint's profitability evolution has taken place, I'm not betting on a sustainable recovery favoring buyers. If you are a long-only investor, I suggest you continue watching this "train wreck" from the sidelines.

Rating: Maintain Hold.

Important note: Investors are reminded to do their due diligence and not rely on the information provided as financial advice. Please always apply independent thinking and note that the rating is not intended to time a specific entry/exit at the point of writing unless otherwise specified.

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