ChargePoint Holdings (NYSE:CHPT), an EV charging company that has come to market via the Switchback Energy Acquisition Corp. (NYSE:SBE) SPAC, has been a volatile. Indeed, CHPT stock has fallen approximately 40% from its 52-week high late last year.
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There are a couple of factors driving shares lower. Among these are the rise of risk-off sentiment and increased competition in the EV charging space.
Rising bond yields have diminished demand for high-growth stocks in a number of sectors. Indeed, the EV sector has been hit hard as a result.
Companies like ChargePoint have not been immune to these moves. If this risk-off sentiment continues, investors in ChargePoint stock will have another headwind to contend with in the near-term.
Many investors appear to be rotating out of growth into cyclical value sectors today. Rising inflation expectations, which have driven bond yields higher, are a direct result of improved sentiment about the economic reopening we’re likely to see coming out of this pandemic.
Thus, investors are now placing higher forward growth projections for cyclical sectors with much better fundamental valuations. Accordingly, companies with valuations in the nosebleeds are out. Value is in.
A Closer Look at CHPT Stock
Little in the way of support from the Federal Reserve isn’t helping calm the minds of growth investors concerned about inflation. Federal Reserve chairman Jerome Powell’s recent speech this past week didn’t do much in the way of assuaging the market’s concern on this front.
Thus, it’s possible we could see bond yields continue to progress higher over the medium-term.
Additionally, while this SPAC merger was approved on Feb. 26, and ChargePoint stock began publicly trading on March 1, delays with this merger approval initially cast doubt on the SPAC deal and the premium investors were paying to get access to ChargePoint going public.
Right now, this all seems to be irrelevant. However, the high levels of retail investor interest that many believe led to this delay in the SPAC merger being approved could be a catalyst to keep an eye on.
Competitive Landscape Unfriendly to Shareholders
Breaking news: ChargePoint isn’t the only game in town.
Investors bullish on the growth in EV charging stations long-term certainly need to factor competition into their valuation models for CHPT stock.
Indeed, a significant amount of long-term growth is being priced into CHPT stock right now. However, my concern is this sector’s growth may be held up by margin pressures as competition increases over time.
ChargePoint’s business model is easily replicated. In fact, two other SPAC mergers involving EVgo and Climate Change Crisis Real Impact 1 Acquisition (NYSE:CLII) as well as EVBox and TPG Pace Beneficial Finance (NYSE:TPGY) are pending.
Blink Charging (NASDAQ:BLNK) is a company that has already gone public.
Accordingly, I don’t think ChargePoint has enough of a moat to withstand competitive pressures long-term. Unlike gas stations, which undertook years of consolidation, the EV charging space remains a nascent growth market. Small players are popping up everywhere, in a bid to gobble up as much market share as possible.
Yes, consolidation will take hold over time. However, for now, investors will be looking for the pick of the litter.
Conclusion on CHPT Stock
I think ChargePoint’s business model isn’t differentiated enough to warrant investment right now. Furthermore, the catalysts that have taken this stock higher in the near-term are beginning to lose momentum.
I think investors seeking growth in this sector would be better-suited waiting on the sidelines for the dust to settle a bit more. There’s just too much uncertainty right now and downside momentum is not a friend to growth investors today.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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