EVgo Stock: Risk with Lots of Reward (NASDAQ:EVGO)

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sanfel

Introduction

EVgo, Inc. (NASDAQ:EVGO) is still down more than 47% from its 52-week high due to macro conditions and negative investor sentiment. Supply chain issues have slowed electric vehicle (“EV”) production, while the gas-guzzling EVgo business has turned away investors seeking safety amid market fears. However, EVgo’s growth potential remains intact and its valuation continues to rise.

Company presentation

Using EVgo’s own infrastructure, their core business is the provision of EV charging services to individual EV drivers (45% of total revenue), OEMs (1%) and fleet owners (9%). As the owner of the charging infrastructure, the company also earns money from the regulatory credits produced by its charging operations, which represent nearly 18% of total revenue.

Q1 2022 analysis

EVgo’s growth remains strong. In the second quarter of 2022, they reported revenue of $9.1 million, an increase of 89.6% year-over-year. The company also had EPS of $0.06, which beat analysts’ expectations of $0.24. Finally, it should be noted that EVgo increased the number of user accounts by 17% quarter over quarter to almost 450,000 user accounts.

Looking for a screenshot of Alpha EVgo earnings

Looking for Alpha

Earlier this year, EVgo benefited from strong electric vehicle sales, in part due to rising gas prices and enticing tax incentives. Although growth in electric vehicles is slowing due to supply chain issues, the market as a whole remains in strong demand, with second-quarter sales surging to over 190,000, representing growth of 13% from compared to the first quarter.

The business model has great rewards

Some investors are hesitant about EVgo due to its high cash burn and asset-heavy business model. However, the fact that the EV market is heavily subsidized, EVgo’s market dominance, and ultimately its valuation combine to make it a sound investment.

Earlier this year, Biden’s infrastructure bill guaranteed more than $5 billion over 5 years for grants to create a national electric vehicle charging network. As a result, the electric vehicle charger market is expected to grow at a CAGR of 30% through 2028. Additionally, the fact that EVgo is the only charging network running on 100% renewable energy makes it a more attractive candidate. attractive for climate change related grants compared to its peers.

Charging electric vehicles at an EVgo station

EVgo deposits

While EVgo’s business model may be more risky, it also comes with its upsides. EVgo currently has the fastest charging speeds on the market as well as the most charging stations in the United States. As the electric vehicle market consolidates, they have the best chance of becoming a market leader in a rapidly growing market.

EVgo charging stations in the United States

EVgo charging stations in the United States (EVgo Filings)

Evaluation

In 2021, the global electric vehicle charging market was worth $17.59 billion, with EVgo taking around 4% of the market. By 2028, the market is expected to reach $111.9 billion. I valued the company considering all of its growth potential with a conservative attitude and assumed that EVgo would retain its 4% market share in 2028. Then I used the P/S ratio of the energy sector by 1.12x and applied it to the company in 2028. In total, this translated to a stock value of $72.46 in 2028, and the discount to today gives a price target of $41.35 and an impressive upside of 300%. However, I do not want to give this assessment without stating the caveats. No matter how strong a company is right now, there’s no guarantee it would remain relevant in a market like EV Charging (because it’s so new and bound to be disrupted by new technologies and consolidations). Therefore, EVgo is definitely a high risk, high reward game.

Insider buying activity

On July 26, 2022, two directors purchased 11,962 shares each. These insider trades serve as additional indirect statements of confidence in EVgo’s ability to withstand near-term macroeconomic conditions and grow in the long-term.

Yahoo Funds Insider Buying Activity

Yahoo finance

Conclusion

EVgo is a strong contender in a growing and essential market and I think this stock should be bought. As investors seek refuge in value stocks amid the recession, EVgo’s potential for growth and value should not be ignored. However, investors should always remain cautious as the business remains a high risk to reward investment.

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