ChargePoint Holdings, Inc. (NYSE:CHPT) Might Not Be As Mispriced As It Looks After Plunging 27%

ChargePoint Holdings, Inc. (NYSE:CHPT) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 62% share price decline.

Since its price has dipped substantially, ChargePoint Holdings may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.8x, considering almost half of all companies in the Electrical industry in the United States have P/S ratios greater than 1.8x and even P/S higher than 5x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for ChargePoint Holdings

How ChargePoint Holdings Has Been Performing

ChargePoint Holdings could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Keen to find out how analysts think ChargePoint Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as low as ChargePoint Holdings' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 21% decrease to the company's top line. Still, the latest three year period has seen an excellent 111% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 21% per annum as estimated by the analysts watching the company. With the industry predicted to deliver 23% growth per year, the company is positioned for a comparable revenue result.

In light of this, it's peculiar that ChargePoint Holdings' P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

ChargePoint Holdings' recently weak share price has pulled its P/S back below other Electrical companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of ChargePoint Holdings' revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

You always need to take note of risks, for example - ChargePoint Holdings has 3 warning signs we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.