Despite the supply-chain snarls, production halts, and high inflation, the industrial sector has remained resilient thanks to the extensive use of technology in manufacturing and a strong demand for essential equipment, machinery, and services across various industries. The sector’s steadiness is evident from the Industrial Select Sector SPDR® Fund ETF (XLI) 22.2% returns over the past nine months and 11.8% year-to-date.
Given the industrial sector’s resilience, I evaluated two industrial stocks, ChargePoint Holdings, Inc. (CHPT) and EnerSys (ENS), to determine which has better upside potential. Before analyzing these stocks, let’s discuss what’s happening in the industrial sector.
Over the past year, higher interest rates have weighed heavily on the production at U.S. factories, as manufacturing output declined 0.3% last month. However, factory output was boosted by a 36.7% surge in the production of motor vehicles and parts in the second quarter.
Moreover, companies in the industrial space are finding innovative solutions to navigate the challenges. The global industrial machinery market grew from $506.67 billion in 2022 to $545.67 billion in 2023, exhibiting a CAGR of 7.7%. Further, the market is expected to reach $708.30 billion by 2027, expanding at a CAGR of 6.7%.
Technological advancements like 3D printing, Artificial Intelligence (AI), and big data analytics significantly impact the equipment’s and manufacturing industry, leading to improved productivity, reduced operating costs, and enhanced profit margins.
Moreover, driven by the ‘electrification of everything’ trend, the global electrical equipment market is projected to reach $3.39 trillion by 2029, growing at a CAGR of 11.1%. The increasing electricity demand, focus on energy efficiency, and the adoption of smart grid technologies across industries are also propelling demand for more advanced and efficient electrical equipment.
In terms of price performance, ENS has gained 30.1% over the past three months compared to CHPT’s 5.7% decline. Over the past nine months, ENS has surged 77.6%, while CHPT has lost 32.8%. Moreover, in terms of past year’s performance, ENS is the clear winner with 75.1% gains versus CHPT’s 39.8% decline.
But which stock is a better buy now? Let’s find out.
Latest Developments
On June 14, ENS signed a non-binding Memorandum of Understanding with Verkor SAS to explore the development of a lithium battery gigafactory in the United States. This partnership holds great potential for both companies, offering long-term growth opportunities.
By establishing the battery gigafactory, ENS can optimize cell sizing in battery solutions, reducing reliance on non-domestic cell suppliers. This move towards independence and increased control over the supply chain is a significant step forward for ENS.
On June 27, CHPT announced the availability of NACS connector options for both new orders and for existing installed CP6000, CPE 250, and Express Plus customers. This expansion of their charging solutions enables customers to effectively meet the charging needs of any electric vehicle, regardless of the parking space.
Further, the addition of NACS connector options to CHPT’s product catalog ensures a seamless charging experience for customers and drivers, aligning perfectly with an anticipated increase in NACS-equipped EVs entering the U.S. market in 2025.
Recent Financial Results
ENS’ net sales increased 9.1% year-over-year to $989.90 million in the fourth quarter (ended on March 31, 2023), while its gross profit grew 26.4% from the year-ago value to $246 million. Its adjusted operating earnings improved by 60.3% from the prior-year quarter to $107.10 million.
Non-GAAP adjusted net earnings stood at $75.40 million and $1.82 per share, representing 50.5% and 51.7% improvement year-over-year. Also, the company’s adjusted EBITDA increased 34.6% year-over-year to $118.20 million.
In the fiscal first quarter that ended April 30, 2023, CHPT’s loss from operations amounted to $79.92 million. The company’s attributable net loss came in at $79.39 million and $0.23 per share, narrowing 11.1% and 14.8% from the prior-year quarter, respectively.
Its non-GAAP adjusted EBITDA loss also narrowed 27.1% year-over-year to $48.91 million in the same period. Also, its total operating expenses increased 8.4% from the year-ago value to $110.46 million.
Past and Expected Financial Performance
Over the past three years, ENS’ net income and EPS grew at 8.6% and 9.9% CAGRs, respectively. Also, its levered FCF has grown at a 21.8% CAGR over the same period. Analysts expect ENS’ EPS to increase by 43.7% in fiscal 2024 (ending March 2024) and 14.8% in fiscal 2025.
The company’s revenue is expected to increase by 6.5% in the current year and 5% during the following year. Moreover, ENS’ EPS is expected to grow 14% per annum over the next five years.
CHPT’s revenue and total assets improved at CAGRs of 52.3% and 66.5% over the past three years, respectively. Street expects the CHPT’s revenue to increase by 45.6% for the fiscal year 2023 (ending January 2024) and 52.4% in the fiscal 2024.
However, its loss per share is expected to amount to $0.47 in the current year and $0.18 in the next year. Moreover, CHPT’s EPS is expected to decline substantially at 214.2% per annum over the next five years.
Profitability
ENS’ trailing-12-month revenue is 7.19 times what CHPT generates. Moreover, ENS is more profitable, with an EBITDA margin and net income margin of 10.45% and 4.74% compared to CHPT’s negative 59.24% and 64.91%, respectively. Also, ENS’ levered FCF margin of 6.03% is relatively higher than CHPT’s negative 50.63%.
In addition, ENS’ ROCE, ROTC, and ROTA of 11.38%, 6.58%, and 4.86% compared with CHPT’s negative 84.59%, 28.99%, and 31.63%, respectively.
Valuation
In terms of forward EV/Sales, ENS is currently trading at 1.33x, 69.6% lower than CHPT, which is trading at 4.38x. Moreover, ENS’ forward Price/Sales of 1.12x is 74.1% lower than CHPT’s 4.32x.
Hence, ENS is relatively more affordable.
POWR Ratings
ENS has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. CHPT, on the other hand, has an overall rating of F, which translates to a Strong Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. ENS has a B grade for Quality, justified by its higher-than-industry profitability. ENS’ trailing-12-month levered FCF margin and asset turnover ratio of 6.03% and 1.01x compared to the industry averages of 5.28% and 0.79x, respectively.
On the other hand, CHPT has an F grade for Quality, consistent with its weak profitability. CHPT has a trailing-12-month levered FCF margin of negative 50.63% compared to the industry average of 5.28%. Likewise, the stock’s trailing-12-month asset turnover ratio of 0.48x is 39.4% lower than the industry average of 0.79x.
In addition, ENS has a grade of B for Value, in sync with its lower-than-industry valuation. In terms of forward EV/Sales and Price/Sales, ENS is trading at 1.33x and 1.12x, 26.8% and 18.8% lower than the industry averages of 1.82x and 1.38x, respectively.
Conversely, CHPT has a grade of F for Value, consistent with its stretched valuation. CHPT’s forward EV/Sales multiple of 4.38 is 141.1% higher than the industry average of 1.82x. Also, its forward Price/Sales ratio of 4.32x is 212.6% higher than the industry average of 1.38x.
Of the 91 stocks in the B-rated Industrial - Equipment industry, ENS is ranked #2 while CHPT is ranked #89.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Stability, and Sentiment. Click here to view ENS ratings. Get all CHPT ratings here.
The Winner
Thanks to the end-market revival and breakthrough of technological advancements, the industrial sector is well-poised for robust growth. This uptick in demand presents exciting opportunities for the industry participants such as ENS and CHPT, which are expected to benefit from expansion and innovation.
However, given CHPT’s relatively poor financials, unhealthy profitability, and dim growth outlook, its competitor ENS might be the better buy now.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the top-rated stocks in the Industrial - Equipment industry here.
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ENS shares were trading at $107.79 per share on Tuesday afternoon, down $0.53 (-0.49%). Year-to-date, ENS has gained 46.54%, versus a 20.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
ChargePoint Holdings (CHPT) vs. EnerSys (ENS): Which Industrial Stock Are You Buying? StockNews.com
