Some Wall Street analysts came to the defense of electric-vehicle charging company EVgo on Thursday, the day after a short seller's report sent the shares sliding.
EVgo (ticker: EVGO) stock dropped 15.3% Wednesday after short seller and research firm Fuzzy Panda Research called the stock overvalued.
Short sellers don't typically focus only on valuation, and Fuzzy Panda said that broken chargers are a problem and network utilization is low. It also alleged that some of the company's corporate partners are "questionable."
EVgo refuted Fuzzy Panda's claims. "The report is filled with numerous inaccuracies, mischaracterizations, and outright lies," a company spokesperson said in an emailed statement to Barron's Thursday. "We look forward to discussing with investors directly." Fuzzy Panda didn't immediately respond to a request for comment.
In a Thursday report, J.P. Morgan analyst Bill Peterson defended the company. "Coming off of our Energy, Power, and Renewables Conference where we spoke with management, we feel comfortable with EVgo's position despite the short seller claims," he wrote.
Peterson pointed out that EVgo has stated charger uptime -- when the charge is available for EVs to use -- is in the 90% range and that the revenue reported in the recent quarter aligns with metrics like that.
He added that while EVgo has negative profit margins, the company is in the early stages of its growth.
As for EVgo's partners, EV start-up Electric Last Mile Solutions (ELMS) has filed for bankruptcy protection. But the analyst highlighted that EVgo also works with major auto players General Motors (GM) and Toyota Motor (TM), among others.
Peterson projects EVgo will generate $51 million in sales in 2022 and $120 million in sales in 2023. That isn't far from the $54 million EVgo originally projected in 2022 sales when it announced its merger with a special purpose acquisition company in summer 2021. Peterson's 2023 sales estimate, however, trails behind the company's original projection of $166 million.
Cash burn can be a common concern for investors in start-ups. EVgo is expected to use roughly $400 million in cash in 2022 and 2023 combined. It has almost $500 million on its balance sheet.
Fuzzy Panda wrote that EVgo has 2.5 years of cash remaining at current burn rates. That aligns with Wall Street projections.
Cowen analyst Gabe Daoud added in a Thursday report that current network utilization isn't the right statistic to use. Current utilization -- meaning how many chargers are being used, and a metric cited in the short-seller report -- "is a misleading metric to use under the current backdrop with EVgo expanding its network ahead of the expected acceleration in EV penetration," he wrote.
EVgo is building a network of fast-charging stations, the kind that use direct current and can provide an electric vehicle with 50 or 100 miles of range in minutes.
Peterson rates EVgo share Buy. His price target is $13 a share. Daoud also rates shares Buy with a target of $16 a share.
Overall, eight of 23, or 67%, of analysts covering the stock rate shares Buy. The average price target is roughly $13.50 a share.
EVgo stock fell 1.6% to $6.01 on Thursday. The S&P 500 and Dow Jones Industrial Average were down 0.9% and 0.8%, respectively.
Before the short-seller report Wednesday, the stock was down about 25% this year. Soaring inflation and rising interest rates have sapped some investor enthusiasm for companies that don't generate positive free cash flow.
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