ChargePoint (NYSE:CHPT) stock is down 60% from its December highs. Investors are frantically looking for reasons why. Conversely, not many were complaining about the string of green ticks on the way up. The truth is that the rally from the U.S. elections was unreasonable. This drop in CHPT stock is merely correcting an overzealous 2020 stint.
Last year when the U.S. elections showed an advantage towards now President Joe Biden, ESG investment themes took flight. This included electronic vehicles (EVs), solar and alternative fuels. Wall Street was quick to price idealistic scenarios for almost everything. Investors are rarely reasonable, they almost always overshoot in both directions.
The 170% rally from $18 per share faded in early 2021. But there is good news, and it’s in the form of support. While the 60% crash from the December high was brutal, it established a floor near $20 per share. Investors have successfully defended it four times. If this rebound this week holds, then last week would count as the fifth successful bounce.
As long as the bulls remain calm, they can rebuild momentum to deal with the resistances on the chart above.
CHPT Stock Can Rally Off its Base
There will be sellers lurking into $26 per share. However with a steady higher-low trend, the bulls can take it out and rally another 15% from there. This of course needs to happen inside a healthy overall market. So far the indices are still breaking records, so there are no signs of macroeconomic distress. But when in record territory, downsides can be sudden and sharp.
The Federal Reserve event this week could throw a wrench in this plan, but there is no evidence of debacles yet. CHPT stock needs all the tailwinds it can get to hold. Losing the recent support lines would mean further downside, perhaps as low as $15 per share. While this is not my forecast, it is a scenario that exists. The bulls have to be realistic so they can be ready to act. If the worst case happens, it would make for a really good long term entry with conviction.
Fundamentally, the concept of charging stations makes sense. If the EV is going to replace the internal combustion engine (ICE), there will be a need for CHPT services. So far, the income statement is too small to serve as a gauge for future successes. This is where faith in management comes in, because the stock is expensive on its face value. At this stage, this is not a discounting factor for the opportunity.
The Opportunity Is Real
ChargePoint is a future growth opportunity, so “cheap” is not what we seek now. However they say price is truth, and this descending trend is concerning. They also say “don’t fight the tape,” and sellers are currently in charge of the stock. This can change. In fact the assumption from here is that the floor will hold unless we see otherwise.
Those long the stock already may have missed the opportunity to panic out of it. On the other hand, this could be an opportunity for new investors to get long CHPT stock. When markets are at all time highs, it’s smart to take only partial positions. Stocks don’t trade in a vacuum. While the opportunity in CHPT looks good now, it could fail through no fault of its own. Managing risk size is extremely important when we don’t know where the bottom lies.
In summary, I like the long-term prospects of EV companies. This one is on track to be among the winners. Politicians have promised a lot, and the CHPT bottom line needs them to follow through. They recently passed an infrastructure deal but not enough of it was for ChargePoint. Maybe more will come from the new spending budget due out soon.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.
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