What a brutal six months it’s been for ChargePoint. The stock has dropped 48.3% and now trades at $5.42, rattling many shareholders. This may have investors wondering how to approach the situation.
Is now the time to buy ChargePoint, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is ChargePoint Not Exciting?
Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons we avoid CHPT 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 9.9% over the last two years. 
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 50.5%, meaning it lit $50.53 of cash on fire for every $100 in revenue.
3. Restricted Access to Capital Increases Risk
Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.
ChargePoint posted negative $82.7 million of EBITDA over the last 12 months, and its $260.9 million of debt exceeds the $142 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
We implore our readers to tread carefully because credit agencies could downgrade ChargePoint if its unprofitable ways continue, making incremental borrowing more expensive and restricting growth prospects. The company could also be backed into a corner if the market turns unexpectedly. We hope ChargePoint can improve its profitability and remain cautious until then.
Final Judgment
ChargePoint isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at $5.42 per share (or a forward price-to-sales ratio of 0.3×). 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 suggest looking at one of our top software and edge computing picks.
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