More Unpleasant Surprises Could Be In Store For ChargePoint Holdings, Inc.'s (NYSE:CHPT) Shares After Tumbling 28%

To the annoyance of some shareholders, ChargePoint Holdings, Inc. (NYSE:CHPT) shares are down a considerable 28% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 81% share price decline.

In spite of the heavy fall in price, there still wouldn't be many who think ChargePoint Holdings' price-to-sales (or "P/S") ratio of 1.3x is worth a mention when the median P/S in the United States' Electrical industry is similar at about 1.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for ChargePoint Holdings

How ChargePoint Holdings Has Been Performing

With revenue growth that's superior to most other companies of late, ChargePoint Holdings has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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.

Is There Some Revenue Growth Forecasted For ChargePoint Holdings?

There's an inherent assumption that a company should be matching the industry for P/S ratios like ChargePoint Holdings' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 67%. The strong recent performance means it was also able to grow revenue by 272% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 23% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 67% per year, which is noticeably more attractive.

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.

The Key Takeaway

Following ChargePoint Holdings' share price tumble, its P/S is just clinging on to the industry median P/S. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a 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.

Plus, you should also learn about these 4 warning signs we've spotted with ChargePoint Holdings (including 2 which are a bit unpleasant).

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.