Is CHPT undervalued? Well, CHPT has a Free Cash Flow Yield (FCFY) of -0.03, a PB ratio of 7.85, and has returned 2.02% in the last 6 months. This information isn't that useful without some context, so how does it compare to peers in its industry? If you're looking for a solid investment, you want a stock that is performing better than its peers in the same industry.
Quick side tangent on peer comparison - you can skip this part if you are already familiar with using peer comparison to value companies. Peer comparison is one of the most widely used and accepted methods of equity analysis used by professional analysts and by individual investors. It has proved to be efficient and effective, quickly showing which stocks may be overvalued, and which might make good additions to a portfolio. We know there are other methods of determining when a stock is worth buying, such as discounted cash flow or technical analysis, but we can make a strong argument that peer comparison analysis remains a key tool for uncovering undervalued stocks.
So now we know peer comparison is valuable, let's see how CHPT compares to its peers in the industry. For each comparison, I'll provide a brief explanation of why the metic is useful and how to know if CHPT is potentially a solid investment.
Cash is king, or so they say, and CHPT has a Free Cash Flow Yield (FCFY) of -0.03. FCFY is a financial solvency ratio that compares the free cash flow per share a company is expected to earn against its market value per share.
Generally, the lower the ratio, the less attractive a company is as an investment because it means investors are putting money into the company but not receiving a very good return in exchange. A high free cash flow yield result means a company is generating enough cash to easily satisfy its debt and other obligations, including dividend payouts.
Now that we know a lower ratio is bad and a higher ratio is good, we need to get a relative sense of where CHPT compares relative to its peers. The ideal FCFY will differ by industry so it's useful to look at this vs its peers.
CHPT has a Free Cash Flow Yield (FCFY) of -0.03. Let's see how this compares to ChargePoint Holdings, Inc. peers. The Average FCFY is 0.16, with a minimum FCFY of 0.47 and a maximum FCFY of 0.02. This suggests that CHPT is performing worse than the industry average.
The P/B ratio is a great ratio to see if a company is a solid investment. Right now, CHPT has a P/B ratio of 7.85. Looking at the P/B ratio in isolation is one thing, but understanding the P/B ratio among industry peers is useful since P/B will be different, depending on the industry and sector.
The P/B ratio measures the market's valuation of a company relative to its book value. The market value of equity is typically higher than the book value of a company, P/B ratio is used by value investors to identify potential investments. P/B ratios under 1 are typically considered solid investments.
We know CHPT has a PB Ratio of 7.85. Let's see how this compares to CHPT's peers in the industry. The average P/B ratio is 1.4, with a minimum P/B of 2.85 and a maximum P/B of 0.4. This suggests that CHPT is performing worse than its peers.
Now, let's take a look at recent historical performance to see if investors have taken notice and acted on the relative valuation of CHPT vs its peers. We will look at the 1 month, 3-month, and 6-month average return of CHPT vs industry peers. Here is the breakdown:
I understand historical performance isn't necessarily an indicator of future performance, etc. but when looking at how CHPT performed over these time periods, it shows that investors believe CHPT is a solid investment
Is CHPT undervalued? Yes, based on the peer comparisons we looked at today. There are obviously several other factors to consider when deciding to invest in CHPT but this peer comparison is a good place to start, and one of my go-to valuation analysis methods when determining whether or not to invest in a company.