What a brutal six months it’s been for ChargePoint. The stock has dropped 55.5% and now trades at $0.62, rattling many shareholders. This may have investors wondering how to approach the situation.

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Why Is ChargePoint Not Exciting?

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

1. Revenue Tumbling Downwards

We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. ChargePoint’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 5.6% 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 60.1%, meaning it lit $60.09 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 $159 million of cash over the last year, and its $600.8 million of debt exceeds the $225 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 $0.62 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 suggest looking at one of Charlie Munger’s all-time favorite businesses.

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