The world’s largest electronic vehicle (EV) charging network ChargePoint Holdings (NYSE:CHPT) stock completed its reverse merger and trading it’s own symbol as of Mar. 1, 2021. Shares have followed the usual pattern of selling off on the symbol change as most special purpose acquisition companies (SPACs) tend to do. Investors will remember that Switchback Energy Acquisition Corp (NYSE:SBE_u) was the SPAC that ChargePoint reverse merged into. Shares sold off for three days before forming a daily hammer candlestick. The correction in EV stocks is enabling investors to step into positions at much cheaper prices. The EV revolution is still in the early stages of adoption as major vehicle manufacturers move forward with electrification of their models. Risk-tolerant investors and nimble traders waiting for the combined entity to bottom out should watch for opportunistic pullback levels to consider building a position in a leading EV infrastructure play. It’s important to keep in mind the potential dilution on the stock after Mar. 26, 2021, which could further depress prices.
ChargePoint
Prior to the reverse merger and business combination ChargePoint was previously a SPAC called Switchback Energy. Shares spiked up to $50 on the EV charging network frenzy lead by Blink Charging (NASDAQ:BLNK)) and Beam Global (NASDAQ:BEEM) which highs of $60.72 and $68.44, respectively. Both stocks have lost over half their values from the top and don’t even come close to the size on ChargePoint’s network of over 120,000 charging stations and adding over 2,000 stations a month with a goal of 2.5 million sites worldwide by 2030.
The Company estimates hitting $2 billion in annual revenues by 2027. As of September 2020, ChargePoint had a 73% market share of L2 charging stations over 7X the closest competitor. The Company generates 80% of its revenues from charging fees and 20% from its subscription plans with over 4,000 existing commercial clients. The Company is the leader in EV charging infrastructure buildout as the first mover in the space 14 years ago. ChargePoint is positioned to benefit as the clean energy and EV wave continues to gain momentum from social, political, regulatory, and mainstream adoption. Revenues for the 12-months ending Oct. 31, 2021, were $147.342 million and total net losses were (-$140.08 million). Subscriptions showed the most growth at 40% year-over-year (YoY), which revenue growth was in the single digits.
Oppenheimer Outperform Rating
On Mar. 3, 2021, Oppenheimer started coverage of ChargePoint with an Outperform rating and a $39 price target. They cited the company as a “unit play on EV adoption”. The price target is based on 12.4X 2026 revenue forecasts of $1.36 billion and discounted one-year at 10%. While the narrative is strong and convincing, the mechanics of the underlying stock is a different story after taking a look at the S-1 filing.
CHPT FORM S-1 Filing Details
This is where SPAC companies have the scary details of the underlying share structure. According to the FORM S-1 filing on Mar. 2, 2021, total shares outstanding prior to exercise of warrants is 277,768,357 shares held by 361 shareholders of record on Feb. 26, 2021 and warrants to purchase an aggregate 55,753,161 shares by 27 holders. Total outstanding shares rise to 303,027,168 shares with the exercise of all warrants. This equates to 25,258,811 shares attributed to warrants exercisable at $11.50 per-share (public and private warrants) and $6.92 per-share (“other warrants”).
The common stock offered by selling shareholders (which the Company receives no proceeds) is up to 260,761,772 shares (CHPT) and 6,521,568 warrants (CHPT WS). The Sponsor exercised its right to convert a portion of the Working Capital loans made to Switchback for 1,000,000 private warrants with a $11.50 per warrant exercise price in satisfaction of the $1.5 million principal amount of such loan which $1.3 million was outstanding as of Dec. 31, 2020. This was in addition to the 5.522 million Private warrants purchased at $1.50 per-warrant exercisable 30-days after closing of the Business Combination (Feb. 26, 2021).
Earnout Trigger Event
On page 40 of FORM S-1, the earnout period of 5-years (after Feb. 26, 2021 Closing Date) where ChargePoint can issue to Eligible ChargePoint Shareholders up to 27 million shares in three tranches of 9 million shares representing 3.2%, 6.5% and 9.7% of outstanding shares. The volume-weighted average price (VWAP) of one share of CHPY is = or > than specified prices for any 10-trading days within any 20-consecutive trading day period. So basically, if the stock holds above $XX price for 10 days out of a month, then 9 million shares are issued. The total value of the Earnout Shares is estimated at $929.9 million. This is a countering effect to the impending dilution from the selling shareholders and warrant holders.
Accounting 'Material Weaknesses'
On FORM-S1 page 30:
“ChargePoint has identified material weaknesses in its internal control over financial reporting. If ChargePoint is unable to remediate these material weaknesses, or if ChargePoint identifies additional material weaknesses in the future of otherwise fails to maintain an effective system of internal control over financial reporting, this may result in material misstatements of ChargePoint’s consolidated financial statements or case ChargePoint to fail to meet periodic reporting obligations.”
Apparently, this applies to years 2018, 2019 and 2020. It goes on to say:
“There is a reasonable possibility that a material misstatement of ChargePoint’s annual or interim financial statements will not be prevented or detected on a timely basis.”
The Company has hired an independent accounting firm to assess and may issue a report in the future is it finds internal controls over financial documenting is not effective. Oh boy!
The Sponsor makes out like a bandit. On May 16, 2019, Switchback issued 8.625 million Founder shares at $0.003 per-share for $25,000 to the Sponsor. The Sponsor purchased 5.522 million Private Warrants for $1.50 per-warrant. Each Private Warrant entitles the purchase of 1 share of common stock at $11.50 per-share bringing the value to $8.3 million. Sponsor has to wait 30-days after the closing of the Business Combination (Feb. 26. 2021) before they can sell. Also, the Sponsor gave $2 million in working capital loan to Switchback and converted $1.5 million into 1 million Private Warrants convertible at $11.50 per share. Pay attention after March 27, 2021, for potential selling pressure as the Sponsor is able to convert up to 6.22 million Private Warrants at $11.50 per-share if they haven’t already hedged the position. This could be offset by the Earnout Trigger event depending on the trigger prices. With all the aforementioned risks of dilution, only seasoned investors or nimble traders should consider exposure.
CHPT Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provides the near-term perspective of the playing field for CHPT stock. While the stock has been trading under the CHPT symbol for a short period of time, there is price history on the charts which can be used to formulate the indicators with a high rate of accuracy. The weekly rifle chart has an active downtrend formed by the rejection off the $38.66 Fibonacci (fib) level. The falling 5-period moving average (MA) at $34.37 is a solid resistance level driven by the bearish stochastic mini inverse pup oscillation down. The daily rifle chart formed a hammer and subsequent market structure low (MSL) trigger above $26.55. The daily stochastic is under the 20-band and can either crossover back up to retest the daily 5-period MA or reject and form a mini inverse pup for a climactic sell-off. This can provide opportunistic pullback levels at the $24.32 sticky 5s level, $22.81 fib, $20.73 fib, $18.84 fib, $17.49 sticky 2.50s level, and the $16.16 fib. Keep in mind, there’s upwards of over 25 million shares priced at $11.50 upon the conversion of the public and private warrants, which could severely depress share prices. The upside trajectories range from the $30.97 fib upwards to the $44.55. Keep in mind the stock is still in price discovery mode with this newborn stock. Keep an eye on peers BLNK and BEEM as they move together.