Shareholders of ChargePoint would probably like to forget the past six months even happened. The stock dropped 23.8% and now trades at $1.09. This might have investors contemplating their next move.
Is there a buying opportunity in ChargePoint, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.Even though the stock has become cheaper, we're cautious about ChargePoint. Here are three reasons why there are better opportunities than CHPT and a stock we'd rather own.
Why Is ChargePoint Not Exciting?
The most prominent EV charging company during the COVID bull market, ChargePoint (NYSE:CHPT) is a provider of electric vehicle charging technology solutions in North America and Europe.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. ChargePoint’s recent history shows its demand slowed significantly as its annualized revenue growth of 4.3% over the last two years is well below its five-year trend. 
2. Cash Burn Ignites Concerns
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
ChargePoint’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 62.5%, meaning it lit $62.51 of cash on fire for every $100 in revenue.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
ChargePoint burned through $200.6 million of cash over the last year, and its $299.4 million of debt exceeds the $219.8 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the ChargePoint’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of ChargePoint until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
ChargePoint isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at $1.09 per share (or 1× forward price-to-sales). The market typically values companies like ChargePoint based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. We’d recommend looking at Yum! Brands, an all-weather company that owns household favorite Taco Bell.
Stocks We Would Buy Instead of ChargePoint
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