Over the last six months, ChargePoint’s shares have sunk to $10.71, producing a disappointing 7.7% loss - a stark contrast to the S&P 500’s 21% gain. This was partly driven by its softer quarterly results and might have investors contemplating their next move.

Is there a buying opportunity in ChargePoint, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.

Why Is ChargePoint Not Exciting?

Despite the more favorable entry price, we're swiping left on ChargePoint for now. Here are three reasons why CHPT doesn't excite us and a stock we'd rather own.

1. Revenue Tumbling Downwards

Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. ChargePoint’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 15.6% over the last two years. ChargePoint isn’t alone in its struggles as the Renewable Energy industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

2. Cash Burn Ignites Concerns

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

ChargePoint’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 55.3%, meaning it lit $55.28 of cash on fire for every $100 in revenue.

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

ChargePoint burned through $79.49 million of cash over the last year, and its $309.4 million of debt exceeds the $194.5 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the ChargePoint’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of ChargePoint until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

ChargePoint isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at $10.71 per share (or a forward price-to-sales ratio of 0.6×). The market typically values companies like ChargePoint based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. We’d recommend looking at the most entrenched endpoint security platform on the market.

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