At the start of November, price action with ChargePoint (NYSE:CHPT) stock may have given investors a ray of hope. But since this brief 32% move higher, CHPT has dwindled in price once again. Changing hands for around $2.70 per share today, some may believe the stock can hold on at current price levels before getting back on track following the next round of positive news.
Anything can happen of course, and ChargePoint has its next quarterly earnings release coming up in less than a month. Yet in anticipating the next big rally for CHPT, I say this: while shares could rally, the long-term pattern for this stock is likely to stay negative. Here’s why.
CHPT Stock: The Recent Rally Was Just a ‘Dead Cat Bounce’
Irrespective of the fact it was temporary, ChargePoint’s early November rally was definitely not the product of company-specific news. It’s not as if, on Nov. 1, the company announced a game-changing partnership deal, or any sort of other development that would justify a needle-moving rather.
Instead, as InvestorPlace’s Paul R. La Monica pointed out last week, the latest surge for CHPT stock was fueled by the market’s short-lived shift back into “risk-on” mode, following the Federal Reserve’s decision to hold interest rates steady.
A positive development for rate-sensitive speculative growth stocks, it’s no surprise that CHPT and similar names made such an outsized move upon the news.
Yet while similar positive macro developments could spark rallies down the road, keep in mind that the latest rally was just a dead cat bounce; a small, brief recovery of a stock that is experiencing a long-term decline in price. Future macro-driven rallies will also likely be “dead cat bounces” as well.
While possibly providing some relief for investors (i.e. an opportunity to exit at a less bad price), count on these bounces being far outweighed by the stock’s further drop, driven by a continued worsening of its fundamentals.
The Situation is Not Improving
Sure, it’s harsh to say that there is no end in sight to the steady implosion of CHPT stock, but there’s no other way to describe it. Market noise may help to slow it down, yet as issues with ChargePoint’s business persist, it appears inevitable shares will keep on tumbling.
As discussed in my last ChargePoint article, the situation here is not improving. The company continues to sustain large operating losses, while investing in the build-out of its EV charging network, hoping to scale to profitability. To sustain itself, CHPT keeps raising cash through the sale of new shares, diluting existing investors.
Although forecasts call for losses to narrow significantly over the next 24 months, this may not happen. Besides factors like heavy competition, there’s no getting around the fact that EV demand is slowing down. Even if mass adoption of EVs ultimately happens, it may take much longer than first anticipated for this to happen.
With its EV network built out for a level of demand that still hasn’t arrived, high losses will continue. ChargePoint will burn through more cash, and will need to fundraise once again, if it can fundraise at all.
There’s Only One Course of Action: Stay Away
It’s bad enough that further shareholder dilution appears inevitable, but there may be an even worse turn of events ahead for ChargePoint. If EV demand keeps slowing down, it may become considerably harder, if not impossible, to convince investors to buy newly-issued shares.
With this, a “game over” moment for CHPT is not outside the realm of possibility. That said, well before a total wipeout goes from remotely possible to highly probable, chances are buying this stock today will prove unprofitable.
Just like at the start of this month, shares could from time to time spike on macro news. However, slowly yet surely, further rounds of bad news out of the company will keep the stock sinking on a downward trajectory.
With this, there’s only one course of action to take here with CHPT stock: stay away.
CHPT stock earns an F rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
