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According to various projections, the next decade will be marked by the rise of electric vehicles (EVs).
Bloomberg estimates that the number of EVs sold will increase from 1.7 million units in FY2020 to 26 million units in FY2030. Deloitte is more optimistic and estimates EV sales will reach 31.1 million units by FY2030.
One way to benefit from this secular tailwind is by increasing exposure to EV stocks. Another idea is to consider exposure to industries or sub-sectors that stand to benefit from this tailwind. For example, global lithium demand is set to more than double by FY2024, backed by EV growth.
Another way to play the growth story is to consider exposure to electric vehicle charging companies. Growth in the electric vehicle industry is impossible without a proper charging infrastructure. Therefore, if the above estimates for EV adoption hold true, the EV charging industry stands to benefit.
Enter ChargePoint Holdings (CHPT), which operates a network of electric vehicle charging stations in the United States. The company was listed through an SPAC business combination and seems like an attractive name in the EV charging business.
Robust Growth Outlook
Given the possibility that the EV industry is at an inflection point, the company has a robust growth outlook.
For fiscal year 2021, the company reported revenue of $146 million, with approximately 31,263 Chargepoint ports shipped. By FY2026, the company expects to ship 425,060 ports. For the same year, revenue is expected to land at $2.1 billion.
Therefore, the next four to five years are likely to be the best years for the company in terms of top-line growth. Importantly, these estimates are realistic considering the following factors.
First and foremost, the company has a leading market position in North America. The SPAC business combination has boosted its cash position to $615 million, with it likely to pursue aggressive growth.
It’s also worth noting that ChargePoint intends to expand into Europe, and therefore, has a big addressable market. According to the company, the cumulative charging infrastructure investment in the U.S. and Europe is projected to come in at $60 billion through FY2030.
Furthermore, ChargePoint is focused on end-to-end solutions. This includes hardware, software and services. While hardware revenue is one-time, subscription and support revenue are recurring in nature.
As the number of charging stations installed grows, the company’s recurring revenue will also increase. Over the next five years, ChargePoint’s revenue will be more diversified. Additionally, as subscription revenue swells, cash flow visibility will increase significantly.
Another important point to mention is that as software revenue increases, it’s likely to have a positive impact on gross margin. The company is expecting gross margin to expand from 24% in FY2020 to 42% by FY2026.
For the last fiscal year, the company reported cash used in operations of $92 million. However, economies of scale coupled with recurring revenue growth will ensure that operating cash flow turns positive relatively soon.
In terms of strategic objectives, the company is also looking at acquisitions to boost growth, with it potentially using the inorganic route for accelerated expansion in Europe.
Wall Street’s Take
CHPT’s Strong Buy consensus rating breaks down into 3 Buys and 1 Hold. Based on the $39 average analyst price target, shares could soar 95% in the year ahead. (See ChargePoint stock analysis on TipRanks)
Relatively speaking, ChargePoint seems more attractive than peer Blink Charging (BLNK), with it significantly ahead of Blink in terms of market share in the U.S.
At the same time, competition is not a concern given the big addressable market in the U.S. and Europe. Multiple players can grow at a healthy pace over the next few years.
What’s more, CHPT stock has corrected recently, and at around $20, the stock seems attractive for medium to long-term exposure.
Disclosure: On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.