EVgo has had an impressive run over the past six months as its shares have beaten the S&P 500 by 30.7%. The stock now trades at $4.13, marking a 35.4% gain. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy EVgo, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is EVgo Not Exciting?
Despite the momentum, we're sitting this one out for now. Here are three reasons why EVGO doesn't excite us and a stock we'd rather own.
1. EPS Trending Down
Analyzing the change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
EVgo’s full-year EPS turned negative over the last three years. We’ll keep a close eye on the company as diminishing earnings could imply changing secular trends and preferences.
2. Cash Burn Ignites Concerns
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
EVgo’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 105%, meaning it lit $104.59 of cash on fire for every $100 in revenue.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
EVgo burned through $87.6 million of cash over the last year. With $176.9 million of cash on its balance sheet, the company has around 24 months of runway left (assuming its $85.91 million of debt isn’t due right away).
Unless the EVgo’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of EVgo until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
EVgo isn’t a terrible business, but it isn’t one of our picks. With its shares beating the market recently, the stock trades at 18.7× forward EV-to-EBITDA (or $4.13 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d suggest looking at the Amazon and PayPal of Latin America.
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