EVgo (EVGO) Intrigues But Upside Will Depend on the Economy

As a fundamental narrative, electric vehicle infrastructure provider EVgo (EVGO) offers a sensible and therefore compelling opportunity. Rather than taking a shot on a specific vehicle brand – which faces the volatility of consumer whims and trends – Evgo provides what the EV industry needs to truly get moving: a vast network of public charging stations.

But as much sense as the concept makes, the market hasn’t been kind to EVGO stock. Yes, for the year so far, shares gained more than 13% of equity value. However, during the midweek session, they plunged nearly 19%. Investors took a dim view of EVgo which announced that it was raising cash through an underwritten public offering of $125 million worth of its Class A common stock. 

In turn, options traders also didn’t appear too keen on EVGO stock. So, is it still worth a wager? It might be but the answer depends largely on the economy.

EVGO Stock Faces the Fire

While the forward-looking storyline presents an enticing argument for EVGO stock, it must first and foremost convince shareholders that it’s worth taking the risk. Unfortunately, this point is where the infrastructure players run into some challenges. Basically, the red ink in the charts isn’t without justification and recent data doesn’t provide much room for optimism.

Several days ago, EVgo released its results for the first quarter of this year. According to Zacks Equity Research, the company came out with a quarterly adjusted loss of 9 cents per share. This figure compared favorably to Wall Street’s consensus target of a loss of 15 cents. Over the last four quarters, EVgo beat analysts’ estimates two times.

However, the top line presented a far less auspicious view of EVGO stock. For Q1, the EV infrastructure specialist posted revenue of $25.3 million, missing the consensus target by a sizable 6.41%. It is a major improvement over the year-ago quarter’s sales haul of $7.7 million. However, the company only topped revenue estimates just once in the last four quarters, according to Zacks.

Combined with management’s announcement of a cash raise, it’s no surprise that EVGO stock featured in Barchart’s screener for unusual stock options volume but for rather unfavorable reasons. Following the close of May 17, volume reached 44,931 contracts against an open interest reading of 80,339. In addition, the delta between the Wednesday session volume and the trailing one-month average metric clocked in at 1,192.61%.

Drilling into the details, put volume hit 34,048 contracts while call volume only mustered 10,883. This pairing yielded a put/call volume ratio of 3.13, which leans heavily bearish on paper. It might not be time to panic but investors do need to carefully reassess the situation.

EVgo Faces a Tricky Economic Backdrop

At its core, EVgo attempts to address the classic chicken-and-egg problem that clouds the broader EV sector rollout. Basically, in order for EVs to thrive, they must have access to adequate public charging networks. While a few EV pundits use the bad-faith argument that home charging represents public infrastructure, the reality is that if drivers want to move beyond their daily commute, charging networks represent a necessity.

Here, EVgo attempts to fill the opportunity gap, delivering an impressive public charging footprint. Still, even with the robust coverage, most of the charging infrastructure is concentrated along coastlines where most folks live. However, the expressways connecting western and eastern states have glaring pockets devoid of coverage.

To be sure, the average American doesn’t engage in much interstate driving. However, public charging will be necessary because not everyone has access to home-charging solutions. According to the Office of Energy Efficiency & Renewable Energy, 63% of all occupied housing units have a garage or carport. That leaves a considerable number of people without access to their personal charging solutions.

However, it’s not just a matter of companies like EVgo cranking out more infrastructure. After all, the charging sector suffers from the other side of the chicken-and-egg problem. In order for public infrastructure investments to make sense, EVs must be accessible to average-income households.

Of course, that’s a major problem at this juncture. With inflation stubbornly elevated and more companies issuing layoffs, fewer people may be able to afford EVs. If so, that could crimp EVGO stock.

Not the Most Confident of Indicators

According to the Barchart Technical Opinion indicator, EVGO stock rates as a 72% sell. Short and medium-term indicators suggest coin-toss odds regarding its trajectory. However, Barchart implies that EVGO’s long-term indicator is a 100% sell. Obviously, that’s not the most confidence-inspiring indicator to see.

Nevertheless, EVGO stock also carries a moderate buy consensus view among Wall Street analysts. This assessment breaks down as four strong buys, two holds and one moderate sell. It’s also a slight improvement from the assessment three months ago, which broke down as three strong buys, three holds and one moderate sell.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.