All the Signs Point to Switchback Energy Moving Higher
Editor’s note: This article was updated on Oct. 16, 2020, to correct the number of EVs on the road.
It’s been almost a month since Switchback Energy Acquisition (NYSE:SBE) announced its $2.4-billion combination with ChargePoint Inc., one of the leading electric vehicle charging networks in North America and Europe. Since the announcement of the deal, SBE stock has gained 19% through Oct. 14.
As a fan of electric vehicles in general, I think Switchback’s people made a very astute move by combining with ChargePoint. Unless something goes dramatically wrong in the years ahead, I don’t see how buyers of Switchback units in July 2019 don’t make a lot more money in the future.
Whether you bought the original units, bought some SBE on the open market before it announced the ChargePoint tie-up, or bought in the last few days, all signs point to Switchback Energy shares moving higher.
ChargePoint’s No Johnny Come Lately
ChargePoint was founded as Coulomb Technologies in 2007 when there were approximately 2,150 electric vehicles on the road. A decade later, there were 1.36 million EVs on the road, according to ChargePoint data.
According to the International Energy Agency (IEA), there were only 17,000 EVs on the world’s roads in 2010. In 2019, the IEA says this number jumped to 7.2 million, with 47% in China. Exclude China from the mix, and the rest of the world accounted for approximately 3.8 million.
That might seem like a lot, but considering the IEA projects the global EV stock could hit 245 million by 2030, the growth potential for ChargePoint’s network is off-the-charts.
InvestorPlace’s Louis Navellier recently spoke about this potential.
“The EV space represents one of the most enticing opportunities for growth stocks right now. Dozens of companies are vying for supremacy as consumers grow more concerned about being good stewards of the planet and try to avoid gasoline-powered cars,” Navellier wrote on Oct. 6.
“… Such growth offers investors some interesting ways to play the space. Rather than trying to figure out which EV manufacturers will emerge as dominant, it makes sense [to] bet on the infrastructure that will be needed to recharge all those vehicles on a regular basis.”
Infrastructure remains one of the world’s great secular trends. ChargePoint chief executive officer Scott McNeill believes that the electric charging infrastructure will hit $190 billion by 2030.
ChargePoint’s revenue in 2019 was $147 million. It projects that 2026 revenue will be $2.06 billion. That’s still only 1% of the global charging infrastructure.
At an enterprise value of $2.4 billion, ChargePoint Holdings, the name it will trade under on the NYSE, is currently valued at 16.3-times sales. Based on its projected 2026 revenue, it has a multiple of 1.2-times 2026 sales.
That’s ridiculously cheap if ChargePoint comes anywhere near its potential over the next few years.
Why Wouldn’t You Buy SBE Stock?
Like my InvestorPlace colleague, who believes SBE is a strong buy at $15 despite the fact it isn’t expected to reach EBITDA profitability until fiscal 2025, I see it as a must-own stock for those that believe in the electric vehicle movement.
So, to play devil’s advocate for a second, is there anything that could get in the way of a home run for SBE stock?
Virtually every InvestorPlace contributor who’s written about Switchback since its merger announcement with ChargePoint has been extremely positive about the stock’s future. However, Ian Bezek appears to take issue with its valuation despite its business model getting an A+ for sustainability.
“This is a promising company. However, the valuation now is totally detached from anything realistic. Furthermore, management is really putting the best possible spin on its numbers and competitive market position. Once the shine wears off, expect shares to trade at a more reasonable price,” Bezek wrote on Oct. 8.
Bezek argues that the company’s projected revenue growth of 60%, after the 2020 pandemic saw revenues decline, is unrealistic. I’m not so sure if you take into consideration the growth in the global stock of EVs.
Over the past three fiscal years, ChargePoint’s sales have grown by 39% (2017 to 2018) and 60% (2018 to 2019), respectively. According to the numbers I suggested earlier — electric vehicle stock to grow from 7.2 million (2019) to 245 million (2030) — you would have a compound growth rate of 38%.
All those vehicles have to find charging stations. I don’t think it’s ridiculous to assume that ChargePoint’s track record and history in electric vehicle charging make it a logical candidate to benefit from the exponential growth in EVs.
Will the global stock of EVs hit 245 million as the IEA projects? Probably not. Are there going to be new entrants into the electric vehicle charging market? Undoubtedly.
That doesn’t mean ChargePoint can’t be tremendously successful over the next decade.
Honestly, as SPAC combinations go, this seems like one of the best that I’ve seen in recent years. I guess time will tell if I’m right or not.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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