Investors Should Not Buy Hyliion Stock

Hyliion Holdings (NYSE:HYLN) stock has had a difficult launch since it closed its reverse merger with Tortoise Acquisition Corp. Hyliion stock, trading at $22.80 this afternoon, has fallen over 50% since Sept. 28 when it was changing hands for $48. That was the same day that the reverse merger was approved by the shareholders of both companies.

A 3D rendering of a green truck in front of a blue sky.

Source: Shutterstock

Since Oct. 14, the day that the merger closed and the trading symbol was changed to HYLN, the stock is down nearly 30%

But to be fair, the stock, which  previously traded under the symbol SHLL, has risen significantly since the deal was announced on June 19. The stock closed on that day at $14.04.

Assessing Hyliion Holdings

Here is where things stand now for Hyliion, which develops electrified powertrain solutions  for Class 8 commercial trucks. Its pro-forma market capitalization is $3.29 billion. This is for a company that has generated pro-forma revenue of about $1 million in 2020. The company expects to sell 20 of its electrified powertrains in 2020.

However, it does have $520 million of cash and no debt on its balance sheet as a result of PIPE investment (private investment in public equities) funds that it received.

On page 28 of the company’s June 19 slide presentation, it  published a forecast through the end of 2024. The forecast includes the number of electrified powertrains it expects to sell, along with estimates of its revenue, costs, and EBITDA (earnings before interest, taxes, depreciation, and amortization).

Hyliion expects to sell 300 electrified powertrains in 2021 and 6,600 in 2022. So the company predicts that its revenue and total number of products sold will surge 22 times in 2022 versus 2021.

Those estimates might be a little hard for some to believe. Most manufacturing companies do not experience massive leaps in production and deliveries like that in just one year.

That could be a key reason why many have been bearish towards Hyliion stock, which has a high valuation. That pessimism could lead to a further drop in the stock price going forward.

Investors are going to very carefully monitor the company’s production in 2021. By Q4 of 2021, if its  production and deliveries are growing at a rate which indicates that it can sell 6,600 products in 2022, the shares might recover.

What To Do With Hyliion Stock

Some analysts are decidedly negative on the stock. For example, Jacob Kilby, writing in Seeking Alpha, contended that the company will not “electrify the global haulage industry.”

He argues that Hyliion is highly dependent on one customer that is also an investor and calls its sales to that entity an intercompany transfer.

Moreover, much of its production is carried out by many subcontractors, third parties, and others. In terms of costs, Hyliion really does not control its supply chain very well.

According to Bloomberg, the fact  that Hyllion stock has made  28-year-old founder Thomas Healy a billionaire  before the firm has generated much revenue shows that the company has “much to prove.” The woes that Nikola Corp (NASDAQ:NKLA) has experienced provides backing for that point.

The article points out that Healy can only sell 10% of his holdings in the next six months and that he must wait at least two years before he can unload most of the rest of his shares.

I suspect that most investors will want to see several quarterly reports from the newly merged company before buying its shares. I do not recommend buying the shares now.

On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Mark Hake runs the Total Yield Value Guide which you can review here.

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