ChargePoint Holdings, Inc.'s (NYSE:CHPT) Shares Climb 52% But Its Business Is Yet to Catch Up

ChargePoint Holdings, Inc. (NYSE:CHPT) shares have had a really impressive month, gaining 52% after a shaky period beforehand. But the last month did very little to improve the 73% share price decline over the last year.

Even after such a large jump in price, it's still not a stretch to say that ChargePoint Holdings' price-to-sales (or "P/S") ratio of 1.9x right now seems quite "middle-of-the-road" compared to the Electrical industry in the United States, where the median P/S ratio is around 1.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on ChargePoint Holdings will help you uncover what's on the horizon.

How Is ChargePoint Holdings' Revenue Growth Trending?

ChargePoint Holdings' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.4%. Still, the latest three year period has seen an excellent 214% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Looking ahead now, revenue is anticipated to climb by 23% per year during the coming three years according to the analysts following the company. With the industry predicted to deliver 45% growth per annum, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that ChargePoint Holdings' P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From ChargePoint Holdings' P/S?

ChargePoint Holdings appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Given that ChargePoint Holdings' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for ChargePoint Holdings that you should be aware of.

If you're unsure about the strength of ChargePoint Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

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