ChargePoint Holdings‘ (CHPT -4.48%) CEO and CFO abruptly quit in November 2023, and the company projected weak numbers for its third quarter. These announcements dealt a huge blow to investors’ confidence and sent shares of the electric vehicle (EV) charging infrastructure company crashing.
The last month of 2023, therefore, surprised many when ChargePoint stock rebounded and surged 25.8%, according to data provided by S&P Global Market Intelligence. It turns out that the company’s new management is trying to turn things around, and investors saw an opportunity to buy the beaten-down stock in December.
Bad numbers, but investors still bought ChargePoint stock
ChargePoint’s third-quarter numbers, which came out in early December, were a bummer. Its revenue fell 12% year over year to $110 million. Management had earlier expected to generate at least $150 million in revenue during the quarter and blamed “macroeconomic conditions and execution challenges” for the shortfall.
Although ChargePoint’s subscription revenue rose 41% year over year, revenue from network charging systems slumped 24%. Network charging systems is ChargePoint’s primary business, under which it sells EV charging hardware.
Worse yet, ChargePoint’s numbers confirmed it was facing a demand problem, as it booked an inventory impairment charge of $42 million in Q3 to “address supply overruns related to product transitions and to better align inventory with current demand.” ChargePoint’s gross margin plunged to -22% from 18% in the year-ago quarter.
Those numbers compelled several analysts to slash their price targets on the stock. Analysts from Citigroup, for instance, cut their price target on ChargePoint stock to only $2.40 per share from $8.25 a share.
Yet ChargePoint stock surged in the days following its earnings release for three reasons.
First, management reiterated its goal of turning positive non-GAAP (generally accepted accounting principles) adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the fourth quarter of calendar year 2024. A non-GAAP measure may not make much difference to a stock’s investing thesis, but when a struggling company talks about achieving anything positive, it can generate the kind of positive reaction it seeks from the market.
Second, ChargePoint boosted its cash balance by nearly $100 million to $397 million as of Oct. 31, compared with Jan. 31. Much of that extra cash, however, came from stock sales.
Third, investors are betting on ChargePoint’s new CEO, Rick Wilmer, who previously served as its COO. During ChargePoint’s third-quarter earnings conference call, Wilmer tried hard to convince investors that he was familiar with the company’s business and had already introduced several initiatives as COO to save costs and improve execution.
ChargePoint stock could fail to gain momentum in 2024
ChargePoint didn’t issue any guidance for the fourth quarter, but investors shouldn’t expect much either. It’s an uphill task for the new management to turn things around, and it’s not just the short term that poses challenges — rising competition poses the biggest threat to ChargePoint, starting with EV leader Tesla‘s Supercharger network, which is becoming the benchmark of EV charging in the U.S.
Citigroup is an advertising partner of The Ascent, a Motley Fool company. Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
