Why ChargePoint shares fell 35% last month

What happened

Anyone investing in the electric vehicle (EV) sector should expect volatility. Most of these businesses are building for the future and are not yet profitable. April was a bad month for the market in general, as the S&P500 fell 8.8%. But more volatile and risky growth names like the electric vehicle charging network company ChargePoint holdings (CHPT -2.15%) fell much, much more.

ChargePoint’s stock is down nearly 30% year-to-date, and April was a big part of that decline. Shares fell 34.9% for the month, according to data provided by S&P Global Market Intelligence.

Image source: ChargePoint Holdings.

So what

ChargePoint had a newsworthy article that may have contributed to the general market pessimism for the stock in April. The company announced and reached an agreement to raise $300 million in additional funding. The company raised funds through the sale of convertible bonds to funds advised and managed by private investment firm Antara Capital.

Although the deal appears to be on favorable terms for ChargePoint, it will still dilute existing shareholders, which usually drives the stock down. Another factor in the stock reaction is that stocks had recently risen prior to this announcement. Shares of ChargePoint had previously climbed 37% in March.

Now what

The convertible notes are not due until 2027 and bear an interest rate of only 3.5% if the company pays cash. This goes up to 5% if he pays in notes. These are solid rates and the notes convert at a stock price of just over $24 per share. While that price represented a 30% premium to a weighted three-day average after the deal was announced, it would now be 78% higher than yesterday’s closing price, making the deal still better for existing shareholders.

ChargePoint likely got favorable terms because its underlying business performed well. The company beat its own revenue forecast for its 2022 fiscal year ending Jan. 31. Sales increased by 65% ​​compared to the previous year. And the company has told investors to expect revenue to grow another 96% year-over-year amid its fiscal 2023 guidance.

The company continues to expand in the United States and Europe. In an agreement announced in April with the Colorado Energy Office, ChargePoint will install 20 fast-charging sites to create six freeway corridors allowing residents to travel long distances across the state in an electric vehicle. The company completed the first of six last month.

As the company grows, it can also expect additional potential support from funds allocated when President Joe Biden signed the infrastructure spending bill into law late last year. It calls for $5 billion to be spent on developing electric vehicle charging infrastructure in the United States. As that money is doled out and ChargePoint continues to develop partnerships, April’s share price plunge might look like a good opportunity for investors.

About Robert Pierson

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