EVgo Stock Could Be Set to Rise: Here’s Why

EVgo Stock Could Be Set to Rise: Here's Why

EVgo Inc Is Critical for EV Infrastructure Buildup

Electric vehicle (EV) stocks came under attack in 2022 as investors dumped the risk-on trade and shifted to more conservative stocks. While EV stocks continue to trade on extreme bearish sentiment, I believe it’s an opportune time to look at beaten-down EV stocks, especially shares of companies in the EV infrastructure industry.

Building up a nationwide EV charging network is critical to increasing the adoption of EVs. With gasoline-powered vehicles, you can’t travel long distances without fuel stations across the country. The same applies to EVs, whose driving ranges are generally limited to about 500 miles on a full charge.

That’s why companies like EVgo Inc (NASDAQ:EVGO) are jumping in to expand the EV charging network. The company operates the biggest network of public EV fast chargers in the U.S. Moreover, its EV charging stations are powered by 100% renewable energy.

While EVgo Inc is still in its early stages, I like the company’s strategy to build up its EV charging network. On that note, EVgo has a net $260.0 million in cash that should give the company time to grow its business without scrambling to raise capital in the rising-interest-rate environment we’re in.

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The below chart shows EVgo stock trading at $24.34 in January 2021, prior to suffering a collapse to $5.28 in July 2022.

After mounting a rally toward $12.00 in August 2022, shares of EVgo Inc pulled back by more than 50%. At its current price level, I see EVgo stock as a decent risk/reward contrarian opportunity.

Chart courtesy of StockCharts.com

Significant Financial Growth Ahead for EVgo Inc

EVgo has high prospects for capital appreciation, assuming that the growth of the EV market continues to accelerate, supported by government rebates and tax credits. I expect the company to be eligible for federal and state financial assistance.

EVgo Inc is essentially a start-up, but its early financial growth is encouraging. The company’s revenues surged by 52% to $22.2 million in 2021 after declining by 26% to $13.0 million in 2020.

Analysts expect EVgo Inc to increase its revenues by 117.7% to $48.4 million in full-year 2022 and by 210.9% to $150.4 million in 2023. (Source: “EVgo, Inc. (EVGO),” Yahoo! Finance, last accessed December 28, 2022.)

Meanwhile, analysts expect the company to take years to generate profits and positive earnings before interest, taxes, depreciation, and amortization (EBITDA).

What investors want to see are improvements and narrower losses. Analysts estimate that EVgo Inc will report an adjusted loss of $0.47 per diluted share for full-year 2022, and narrow this to an adjusted loss of $0.44 per diluted share in 2023.

One thing the company has on its side is a healthy balance sheet, which means it doesn’t have an immediate need to raise capital. At the end of September, EVgo Inc’s cash was $300.7 million, its debt was $43.0 million, and it had a solid amount of working capital. (Source: Yahoo! Finance, op. cit.)

Analyst Take

The buildup of the EV industry will require an expansion of the EV charging infrastructure.

This will help drive up EVgo Inc’s earnings over the next decade. It will also likely cause EVgo stock to rise in value.