Analysis: CHPT DE

ChargePoint Holdings (CHPT) on Thursday evening reported October quarter results that were impacted by delayed product shipments due to supply constraints. We see this more as a timing issue, especially following Thursday's November ISM Manufacturing report that showed continued supply constraints for electrical components and chips.

Reaffirming that view, ChargePoint upped its revenue outlook for the current quarter to a range of $160 million to $170 million versus the $81 million booked in the year-ago quarter and $125 million in the recently completed October quarter. That rise in outlook points to continued demand for electric vehicle charging stations, something that only is expected to grow in the coming years as EV adoption rises and funds tied to the Biden Infrastructure law flow. However, continued supply constraints will weigh on margins in the near term, reducing bottom-line expectations.

While we will trim our price target to $20 from $21 to account for that pressure, we continue to think we are likely to boost that target in the coming quarters as supply chain issues fade and operating leverage improves. We saw these same concerns with Deere & Co. (DE) earlier this year when it was plagued by supply chain issues, but as they receded and demand rose, we saw meaningful operating leverage return. Like Deere, which was able to pass through price increases over the last few quarters, so, too, did ChargePoint in June, with roughly half that increase felt in the October quarter. This suggests a far better margin profile in 2023 compared to this year.

There will be some observers who focus on the very near term given the current market mood, but because we are longer-term investors we will instead focus on where CHPT shares are likely to be several quarters from now. As margins expand and volume improves the company is likely to reach cash-flow-positive status by the end of 2024 if not sooner. Exiting October, the company had $397 million in cash and short-term investments, which should carry it well into 2024 as its profitability and cash flow improve. Should that outlook change, we may reconsider the degree of our bullishness for CHPT shares in the short term despite the multi-year opportunity we see ahead. As of now, that looks to be a low probability, especially if ChargePoint continues to grow its Subscription business the way it has so far this year.

More than likely CHPT shares will trade off amid modest price target adjustments, but as they settle out they will offer members who have a long-term view like we do a great place to scoop them up. As such, we continue to rate CHPT shares a 1.

At the time of publication, Action Alerts PLUS was long CHPT and DE.