Mid-cap Specialty Retail company ChargePoint is down -5.7% during this morning's trading session, while the S&P 500 moved -1.3%. With last year's reported gross margins at 22.2%, you might be wondering if today's drop is an opportunity to pick up shares of a profitable company at a discount.
Is ChargePoint plagued with bloated overhead expenses that are eating away at an otherwise profitable business? Or is the company currently unprofitable because it is in a growth phase? A combined analysis of both gross and operating margins can help answer these questions, so that you understand what kind of business you are investing in.
| Date Reported | Revenue ($ MM) | Cost of Revenue ($ MM) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-01-31 | 241 | 187 | 22.21 | -1.24 |
| 2021-01-31 | 146 | 114 | 22.49 | 80.21 |
| 2020-01-31 | 145 | 126 | 12.48 | n/a |
Since ChargePoint's cost of revenue is growing at an average 48.2% per year, while its total revenues have a 32.9% growth rate, the only explanation for the widening margins is that the company is increasing its prices. Since prices cannot be increased indefinitely, ChargePoint's gross margin growth will eventually slow unless it can get its cost of revenue under control.
| Date Reported | Total Revenue ($ MM) | Operating Expenses ($ MM) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-01-31 | 241 | 319 | -110.14 | -33.36 |
| 2021-01-31 | 146 | 154 | -82.59 | 9.83 |
| 2020-01-31 | 145 | 150 | -91.59 | n/a |
The table above tells us that, on average, ChargePoint has not been profitable over the last four years, which should be a warning sign to prospective investors. Indeed, the company's operating margins are sinking at rate of -11.8%
