ChargePoint Holdings shares were up Friday after J.P. Morgan upgraded its rating, citing the stock’s recent pullback coupled with increased confidence in the electric-vehicle charging business.
Analyst Bill Peterson upgraded the stock to Overweight from Neutral. He also lowered his price target to $20 from $26 to take into account a higher discount rate and to apply a multiple that’s more in line with high-growth clean-tech stocks.
stock is down almost 40% year to date, while the S&P 500 is down 9.9%.
“We would not be surprised to see another 20-30% downside,” Peterson said, “[but] we think investors will come around to CHPT as the company continues to execute.”
Peterson and his team argue that investors are being too pessimistic about ChargePoint’s expenses and path to profitability. The company is well-positioned to benefit as workplace charging resumes and more U.S. employees gradually return to the office, the analyst noted. Moreover, the company can benefit from additional fleet deployments and expand its market share in Europe from a relatively small base.
“We think investors are underestimating ChargePoint’s software and service capabilities, including the ChargePoint as a Service (CPaaS) subscription,” Peterson added. The SaaS model provides free installation of charging stations and allows businesses to provide an EV charging solution without purchasing it outright, according to the company’s website. Peterson thinks CPaaS is a higher-margin, recurring-revenue opportunity.
The analyst does see some pricing pressure for charging hardware over time. But, he adds, “we think ChargePoint can maintain sustainable hardware margins through product development and cost reductions that, at the very least, are in-line with industry average.”
ChargePoint posted a quarterly loss of $69.4 million for the third quarter ended in October. This was wider than analysts’ estimates and a year-earlier loss of $40.9 million. The EV charging provider is set to report its fourth-quarter results on March 10, according to FactSet.
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