ChargePoint Holdings (CHPT) reported its October quarter results Thursday evening that were impacted by delayed product shipments due to supply constraints. We view this more as a timing issue, especially after Thursday’s November ISM Manufacturing report showed continued supply constraints for electrical components and chips.
Reaffirming that view, ChargePoint increased its revenue outlook for the current quarter to a range of $160 million to $170 million from $81 million in the year-ago quarter and $125 million in the year-ago quarter. October recently completed. This rising outlook points to continued demand for EV charging stations, something that is only expected to grow in the coming years as EV adoption and funds flow into the Biden Infrastructure Act increase. However, continued supply constraints will weigh on margins in the near term, reducing profit expectations.
While we will reduce our price target to $20 from $21 to account for that pressure, we still think we will likely increase that target in the coming quarters as supply chain issues ease and operating leverage improves. We saw these same concerns with Deere & Co. (DE) earlier this year when it was plagued by supply chain issues, but as they pulled back and demand increased, we saw a significant return in operating leverage. . Like Deere, which has been able to outpace price hikes in recent quarters, so too did ChargePoint in June, with about half that increase coming in the October quarter. This suggests a much better margin profile in 2023 than this year.
There will be some observers who will focus on the very short-term given the current mood in the market, but as we are longer-term investors, we will instead focus on where CHPT stock is likely to be several quarters from now. As margins expand and volume improves, the company is likely to achieve a cash flow positive status by the end of 2024, if not sooner. As of October, the company had $397 million in cash and short-term investments, which should carry it through 2024 as profitability and cash flow improve. Should that outlook change, we may reconsider the degree of our upside for CHPT shares in the near term, despite the multi-year opportunity we see ahead of us. As of right now, that appears to be a low probability, especially if ChargePoint continues to grow its subscription business as it has so far this year.
CHPT shares are more than likely to trade between modest price target adjustments, but as they settle in they will offer long-term-minded members like us a great place to pick them up. Therefore, we continue to value CHPT shares at 1.