Restructuring And GM Energy Collaboration Will Empower EV Charging

Key Takeaways

• ChargePoint's restructuring and expansion into new products are expected to improve adjusted EBITDA and drive revenue growth.
  
• Collaborations and rising EV demand are projected to increase sales and maintain stable gross margins.
  
• Declining hardware revenue and persistent losses raise concerns about growth and profitability, amidst challenging competition and policy uncertainties affecting future revenue and market dynamics.

Catalysts

Provides electric vehicle (EV) charging networks and charging solutions in the North America and Europe.

• ChargePoint's restructuring efforts and cost structure rationalization are expected to improve their adjusted EBITDA, reflecting on potentially higher future net margins.
  
• The company's expansion into next-generation software and hardware products, including innovative solutions like anti-vandalism technology, is projected to drive revenue growth.
  
• Collaborations such as the one with General Motors' GM Energy division for DC fast-charging locations could lead to increased ChargerPoint solutions sales, boosting future revenue.
  
• The demand for EV charging infrastructure is rising due to increased EV adoption, which will likely drive higher subscription revenues and overall earnings.
  
• ChargePoint's diversified geographic manufacturing capabilities help mitigate potential tariff impacts, thus maintaining stable gross margins and supporting future earnings growth.

ChargePoint Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ChargePoint Holdings's revenue will grow by 21.0% annually over the next 3 years.
• Analysts are not forecasting that ChargePoint Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate ChargePoint Holdings's profit margin will increase from -66.4% to the average US Electrical industry of 10.5% in 3 years.
• If ChargePoint Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $77.2 million (and earnings per share of $0.14) by about April 2028, up from $-277.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.3x on those 2028 earnings, up from -1.0x today. This future PE is lower than the current PE for the US Electrical industry at 21.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.53%, as per the Simply Wall St company report.

ChargePoint Holdings Future Earnings Per Share Growth

Risks

• ChargePoint's hardware revenue has shown a significant decline, being down 29% year-on-year, which raises concerns about the company's ability to maintain growth in its core market, potentially impacting overall revenue.
  
• Despite improvements, the company still experienced a non-GAAP adjusted EBITDA loss of $17 million in Q4. Persistent losses could put pressure on the company's ability to achieve profitability, thereby affecting net margins and earnings.
  
• The competitive landscape remains challenging, with rationalization and exits by some players, but also uncertainty around ChargePoint’s ability to capitalize on these changes and gain market share, which may affect future revenue growth.
  
• Policy changes and related uncertainties, particularly in the U.S., could impact market dynamics and project timelines, potentially leading to delays and disruptions in revenue recognition.
  
• Although ChargePoint is not heavily reliant on U.S. federal funding, broader economic and policy uncertainties present risks to the overall EV market, which may slow customer demand and impact revenue projections.

Valuation

• The analysts have a consensus price target of $1.254 for ChargePoint Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $3.0, and the most bearish reporting a price target of just $0.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $738.4 million, earnings will come to $77.2 million, and it would be trading on a PE ratio of 12.3x, assuming you use a discount rate of 10.5%.
• Given the current share price of $0.6, the analyst price target of $1.25 is 52.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.