I wrote quite a bit yesterday about Karim Rahemtulla’s latest teaser ad for his Trade of the Day Plus service, pitching his “Last Great Value Stock”… and got so into it that I ran out of time. I said I’d follow up on the other “special report” he teases in the pitch, so here we are.

Here’s what he dangles as bait with that bonus report:

“‘My Favorite Small Cap Play for 2022’

“We just finished a special report on our favorite small cap for the year ahead.

“It’s a small cap based in an industry that’s been increasing at a compound annual growth rate of more than 50% for the past several years.

“And this company is raking in cash as a result.

“In its latest earnings release, product sales were up a stunning 766% over the prior year.

“It also set a new record for revenue, with an increase of 607%.

“These are MASSIVE growth figures.

“Even in its top growth period, Netflix never saw revenue increase more than 100% in a single year.

“And it was the best-performing stock of the last decade, going up more than 4,000%!

“This company is growing more than 6X faster than Netflix.”

Thinkolator sez that’s almost certainly Blink Charging (BLNK), which is in the fast-growing and competitive EV charging station business — so there’s definitely a tailwind to the sector, as charging stations are built out around the country, partially spurred by new infrastructure spending, but there’s also a lack of real differentiation among the various charging station providers (other than Tesla, with its superchargers), and, at least in my opinion, quite a lot of hype built into current share prices.

That doesn’t mean it can’t work out, but this is a 180 degree turn from the value stock that was the main focus of Rahemtulla’s pitch — Blink is about as far from being a value stock as you can get.

Those 607% and 766% numbers are from the third quarter, and included both strong growth and a bounceback from a very weak third quarter of 2020, so perhaps Rahemtulla is using some slightly stale info in his pitch (the fourth quarter had top-line revenue growth of 224%, still impressive).  The one hitch, the thing that doesn’t match perfectly to the clues, is that no, it was not actually the best performing stock of the last decade, not even close — I guess we can explain that by noting that it was, for a while, among the beset performers of this decade… the shares were up about 4,000% from the COVID lows of March 2020 to the highs of January of 2021 (and they’re still up by about 1,800% since those lows).

But not “last decade.”  The company has actually been public and in roughly the same business since 2009, it changed its name from CarCharging to Blink Charging in 2017, then uplisted to the NASDAQ in February of 2018, but the shares have lost about 70% of their value in the last ten years.

Want to look at it from a “value” perspective anyway? Well, at least it’s half the price it traded at during the EV trading mania we saw a little over a year ago, in early 2021.  It reached a price/sales ratio of about 300 back then, and now it’s down to “only” 50X sales.  So that’s something.

What do the financials look like? Unlike with the other EV charging hopefuls we don’t have pathologically optimistic five-year forecasts for Blink Charging (the leaders in this space went public through SPAC mergers at the height of the recent SPAC mania, so they justified their valuations with 2025 and 2026 forecasts in their SPAC presentations), but we do have some analyst guesses… the analysts who follow Blink think they’ll grow their revenues by 50% this year and another 80% in 2023, which would get them to almost $60 million in revenues in 2023. The company currently has a market cap of about $1.1 billion, so it’s being valued at about 18X next year’s revenues. Nobody thinks they’ll make money anytime soon, this is largely a hardware business and their gross profit is about 15% of revenues, so it will take a lot of work to scale that up (unlike a software company, where each new customer doesn’t really add to the cost of the product, you have to actually build and ship Blink’s battery charging equipment), and they’re spending very, very heavily to grow the top line, so their operating expenses are about 250% of revenues. The margins are moving in the right direction as they grow, but it’s very early days and the margins are moving really slowly.  It’s all about growth, not proving that they can become profitable.

We can’t really predict the future, but sometimes it helps to try to imagine how a company might scale — they are primarily selling charging equipment right now, and there will be some improvements to their economies of scale as they grow, but there will also be some kind of physical limit on that. Let’s say they become twice as efficient in manufacturing, maybe because they get a better price from contract manufacturers as their volume grows. Call it a 30% gross margin, that would be really impressive (ChargePoint is 10X the size of Blink and has gross margins in the low 20s, just for comparison’s sake), and that would mean that Blink, assuming they can grow without having to spend more on selling expenses or overhead (almost impossible, but this is an experiment), would have to have sales of at least $270 million to even think about breaking even. If analysts are correct in assessing that BLNK will hit about $30 million in revenue this year and $60 million next year, then we’re still at least a few years from anything close to profitability.    And they’re not going to get there without increasing their spending on selling and overhead costs, they’ll need more people, so that probably extends the timeline.

That’s not the only way it can work out for Blink, of course, and every growing company goes through the process of deciding how much to invest in growth, and how long it might take for that investment to pay off, but that puts it in pretty good context for me — I have a hard time imagining how Blink can scale to profitability in the next five years, not when there are many competing EV charging companies out there who will probably keep a lid on prices.  It’s not at all impossible, but in my eyes it’s improbable unless they have some advantage over the other players in this space.

We know they don’t have an advantage in scale, or in being the “first mover” or strongest brand, but maybe their technology is better? That’s a judgement call, and I’m not really qualified to distinguish between the offerings of the various players in the EV charging business, but that’s what I would look for if you’re considering an investment.

The one thing that jumps out at me with Blink is its service revenues — they grew that number by better than 250% in 2021, and they are explicitly trying to tie themselves to their customers with long-term contracts that provide a revenue share to Blink for charging services.  That’s not unique, every big charging company is trying to build a proprietary network with lots of partners and with an ongoing higher-margin “royalty” type relationship for servicing installed equipment or providing management software, but maybe Blink is better at it, or has a better tweak on the model than the others?  That might be one area of hope, but the numbers are still so very small that it would require a bit of a leap of faith.

Right now, they’re in pretty good shape thanks to their equity raise last year — they’ve only been burning through about $10 million a quarter, and they’ve got almost $200 million in cash, so they shouldn’t be in any real trouble in the next couple years… the question is really just whether the ongoing push to expand the EV charging infrastructure in the US and Europe will give them enough of a tailwind that they can grow into profitability before the cash runs out.

I find it tough to argue in favor of Blink when some competitors who are much larger, have better gross margins, trade at a cheaper valuation, and are still growing almost as fast.  Unless Blink’s product is genuinely innovative or different in some substantial way, which I don’t really see (I’m not a customer or an expert), the appeal seems mostly to be that Blink is smaller, so has more optionality and might have more positive surprises that let it grow more quickly from its much smaller base — and that could be true, but you don’t give up a lot in expected growth, at least, to buy the larger and more established EV network owners like ChargePoint (CHPT) or EVgo (EVGO).

ChargePoint, in particular, seems to be really capitalizing on the collapse of EVBox’s planned SPAC deal (it fell apart late last year), in acquiring smaller competitors to expand into Europe, where EVBox has been a leader. I confess that of the three, I like the way EVgo presents its business more than I like ChargePoint or Blink’s presentation and description of strategy… but CHPT and EVGO are pretty similarly valued and growing at a similar pace right now.

In the end, they’re all trying to do mostly the same thing: Spend like mad to expand your network, get as many partners and locations and customers signed up as you can while the market is new and changing fast, to try to build a defensible business with a moat, and hope that the huge surge in electric car sales creates a massive flood of business over the next five years that washes away the heavy spending you had to do to get established. And those four companies I’ve mentioned are not, of course, the only four EV charging companies in the world — there are a few other smallish publicly traded players, some other carmakers have tried to follow Tesla’s lead in building out their own branded networks (though to a much lesser degree, at least so far), and there are hundreds of hopefuls out there who think they might have a better idea.  And some of them are parts of much larger companies, or have ample funding from elsewhere — Ionity reportedly got about $600 million from BlackRock to expand its charging station network, and Swiss electrical equipment giant ABB is about to spin out its EV charging business, which they say has developed the fastest charging system available.   It’s not going to be easy for the smaller and less-capitalized players to keep their heads above water.

The general rule in emerging tech areas is that you’ve got the best odds if you go with the first mover who captures the public attention and builds scale fastest, particularly in businesses where there’s a network effect (each new customer or partner makes the network stronger, and stronger networks attract more new customers and partners), and that’s probably ChargePoint right now, but that’s not at all a foregone conclusion. It’s still early, and EVs are still a very small part of the global auto fleet. Who knows, maybe even the ridiculously small Beam Global (BEEM) will be able to distinguish itself and grow into something, or maybe the leader of 2030 will be a company that’s still being “incubated” by venture capital somewhere.

Is the EV charging market going to be big enough, and lucrative enough, for all of these EV charging companies to mature into profitability in the next few years? Maybe. Will there be one or two big winners, giving the advantage to those who are scaling up most quickly, or will it be like gas stations, and most of us, with regular charging primarily taking place overnight at home, won’t really care where we charge up our cars on road trips?  Will the auto companies play a bigger role in choosing the winners?  Will utilization remain extremely low at most charging stations (even in high-penetration countries it’s not much over 10%), or will they get up to something more efficient and become cash cows in the future?  I don’t know, but those are the questions that swirl through my head when I think about the industry as a whole.

It should be an interesting few years, and I don’t think any of the EV charging companies have really perfected what they hope their service offering and business model will be in the end, whether it’s ownership or partnership or memberships or charge-per-kilowatt or, who knows, giving away the electricity in hopes it will attract people who buy other stuff while their car is charging.

My short answer? I can’t tell you whether Blink Charging is special, compared to the other EV charging companies who offer the same basic kinds of products and services… but at the current valuation, as a smaller player, they probably need to be special.  That makes it a little too risky for my blood, but it’s an interesting story.

And this newsletter being pitched is a relatively short-term trading service, they say that they hold their shares for an average of only about 50 days… so is there any catalyst in the near future that will change the outlook for Blink? We could always get more news coverage of the pace of EV charging station investment from the Feds that might boost them, of course, but otherwise the only thing that will definitely happen in that timeframe is their next earnings report — which should be in mid-May.

Their last earnings report was probably best described as a mild disappointment, and the stock did dip a bit, but it’s now back above where it was when that report came out three weeks ago — really, those three EV charging stocks are mostly trading in pretty tight sympathy with each other, so it’s pretty clear that it’s mostly the broad sympathy for the EV charging “story” that’s the big driver right now, not the financials of any of the specific companies.

Love Blink? Think it’s ridiculous? Am I being way too conservative, or too kind to these emerging growth companies? Have other favorite ways to benefit from the buildout of EV charging networks in the US and elsewhere? Let us know with a comment below.  Thanks for reading!