For an electric-vehicle play like ChargePoint (NYSE:CHPT), earnings reports at this point aren't necessarily that important. But with CHPT stock having plunged recently, its fourth-quarter report, due on March 11, simply looks different.
Source: Nick Starichenko/InvestorPlace.com
ChargePoint stock has tumbled 40% in the last month.
ChargePoint isn't alone. Many other names in the EV sector, including Blink Charging (NASDAQ:BLNK), TPG Pace Beneficial Finance (NYSE:TPGY), a SPAC that has announced a tie-up with Europe's EVBox, and even Tesla (NASDAQ:TSLA) have all fallen sharply in recent weeks.
So, obviously, sector weakness is a big factor in CargePoint's trading. And both ChargePoint and the owners of CHPT stock hope its Q4 release can reverse, or at least stem, that tide of selling.
The optimism towards the EV sector has clearly faded. Just as importantly, the industry has not yet built credibility. The potential of the space is enormous — one analyst thinks EVs can become a $5 trillion market globally — but there's still work left to do.
Next week's release is not necessarily going to be about the company's fundamentals in the traditional sense. CHPT stock isn't going to move solely, or possibly at all, based on whether its Q4 numbers beat or miss analysts' average expectations.
After all, the company's business and market are still young. Single-quarter results have a great deal of variability in that situation. Even the gain or loss of an order or two by ChargePoint last quarter may materially change its Q4 results.
Meanwhile, as far as the bottom line goes, ChargePoint is going to post a loss. But that's fine, of course. The company is investing in its business, as it should. And modest moves in operating expenses or even gross margin can, as I suggested earlier, be due to short-term factors. Either way, those numbers won't make or break the company's long-term story.
The Outlook
Perhaps the most important aspect of the results for CHPT stock will be the company's outlook for 2021 and potentially beyond.
After all, ChargePoint also went public via a SPAC, Switchback Energy. Switchback became ChargePoint, trading under the symbol CHPT, after the companies' merger closed late last month.
One of the key distinctions of SPAC mergers versus traditional initial public offerings is that SPACs can make financial projections after a merger deal is made. Companies with IPOs generally cannot do that.
There are fears that pie-in-the-sky projections by so many companies that are merging with SPACs have helped create a bubble. Every SPAC — particularly in the EV space — is targeting exponential revenue growth and substantial margin expansion. They have also generally released detailed models on how those trends will play out.
ChargePoint was no exception. In its merger presentation, it modeled results through fiscal 2027. From $135 million in expected FY21 revenue, ChargePoint predicts that its top line will jump to more than $2 billion in FY27.
It's clear that at the moment, investors are starting to question those projections. One way to restore investors' confidence in CHPT stock would be for the company's guidance to match its previous outlook.
In September, ChargePoint projected $198 million of revenue for FY2022, with a gross margin of 31%. The company needs to reiterate those targets or come close to doing so. It may be that simple.
How ChargePoint Stock Can Rebound
There are two ways of looking at the recent sell-offs across the EV space.
The first is that there was a bubble, or something close. to that I'm sympathetic to that view, and I've previously written that the valuation of CHPT stock was enormous. The rally of EV stocks was too big, valuations ran too hot, and now we're seeing a much-needed correction.
The second view holds that the recent downturn was actually misguided. Whether due to fears of higher interest rates or simply profit-taking, selling turned into panic selling. From a long-term perspective, the short-term plunges are buying opportunities.
I'm somewhat sympathetic to that view as well, particularly for the higher-quality names in the space (and I'd include ChargePoint stock on that list). But that debate this week is why ChargePoint's earnings next week are so important.
If ChargePoint comes out with guidance for FY22 that includes a dramatically slower growth rate, then the "this is just a bubble" argument gets a huge win. If the biggest of the EV charging station plays has to essentially cut its outlook two weeks after its merger closes, what should and will investors expect for the rest of the group?
They'll expect other companies in the EV sector to follow in ChargePoint's footsteps. And they'll likely sell EV stocks as a result.
Failing to provide guidance would not be positive for ChargePoint, either. A company can't offer a six-year outlook in September and fail to offerguidance six months later.
ChargePoint has to keep its FY22 outlook relatively intact, primarily because the company and its sector need to start building credibility. Given where investors' sentiment stands at the moment, on that front there's clearly no room for error or disappointment.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
