Hyliion (NYSE:HYLN) doesn’t seem to get quite the attention of other electric vehicle plays in the market. But investors shouldn’t sleep on Hyliion stock.
To be sure, some have paid attention. When SPAC (special purpose acquisition company) Tortoise Acquisition announced its merger with Hyliion in June, Tortoise stock soared. At one point, it cleared $55 from a pre-merger price near $10.
That rally in retrospect seems like too much. In fact, it seems an awful lot like some of the SPAC-related rallies that at times have seemed like bubbles.
Hyliion stock has since pulled back by more than 50%, as investors moved on to the next ‘hot’ thing. But with that pullback, HYLN at least looks intriguing. Its technology shows promise. The electricified trucking market has real potential. Valuation is not unreasonable if the company delivers on its promise.
It bears noting up front: that’s a big ‘if.’ Hyliion stock is not for the faint of heart, and not yet suitable for capital an investor can’t afford to lose. There are real risks here.
But there are real rewards, too. The hype around HYLN has diminished over the past couple of months, but I see a real chance that it returns.
The Benefits of R/CNG
There’s a lot to like about the Hyliion operating model. The company develops electric powertrains for Class 8 trucks (colloquially known as semis).
And what’s interesting about the technology is that it’s based on renewable compressed natural gas, or R/CNG. R/CNG not only reduces emissions, but can be used to capture and process methane from agricultural sources and landfills. Environmentally speaking, R/CNG is one of the better potential technologies out there.
And as I’ve written before, we’re well past the point where environmental concerns solely reside at the political level. Trucking companies themselves are looking to reduce their environmental footprints. Importantly, so are their customers. A ‘clean’ energy shipping solution created with Hyliion powertrains will attract new business and likely allow for better pricing as well.
Hyliion powertrains also offer financial benefits. Total cost of ownership is substantially lower. And since the technology uses compressed natural gas, there’s an existing fueling infrastructure in place. That’s not yet the case for hydrogen-fueled electrified semis.
All told, there seems a real chance that Hyliion becomes a big winner in semis. Competition will be intense, but one of the industry’s most-covered startups is mired in scandal, while Hyliion is partnering with some of the biggest trucking companies in the country. The technology has real promise, and real benefits for customers.
Meanwhile, Hyliion is starting out with a hybrid solution, but over time will move to fully electrified powertrains. That shift could be a game-changer for Hyliion stock.
Hyliion Stock Soars — and Retreats
Obviously, investors like the model. What was then Tortoise stock rose 450% in a matter of months. What is now Hyliion stock still has nearly tripled from the merger price of $10.
Again, the stock has pulled back of late. It probably needed to. The move to $55 itself seemed a bit much given that Hyliion agreed to give up a good chunk of ownership (about 38%, per the investor presentation) at just $10.
Back at these levels, given broader optimism toward EVs, valuation seems more reasonable. Hyliion projects revenue of $2 billion in revenue by 2024 and $600 million in EBITDA (earnings before interest, taxes, depreciation and amortization).
Given a somewhat capital-light model (again, Hyliion isn’t actually building the trucks), those projections make a current $4 billion market capitalization look reasonable. In fact, if those targets are hit, Hyliion stock is downright cheap.
Neither 4x to 6x revenue nor 20x EBITDA seem unreasonable multiples for a company that, at those levels, still would have captured barely 2% of its market. Those multiples suggest HYLN could easily double.
At the very least, after the pullback, valuation can work if the company grows as expected. If that happens, Hyliion stock could be one of the big winners in EVs.
What Goes Wrong
It bears repeating: that’s a big ‘if.’ There are risks.
Short-term volatility is one. We’ve seen enormous rallies in EV stocks in the past few weeks. Some look deserved. Others are far more questionable. I’m as bullish on the sector long-term as anyone (and I have been for years), but I’d hardly be shocked if we saw a temporary, sector-wide pullback that brought HYLN down with it.
Longer-term, meanwhile, Hyliion still has to win. It certainly has the opportunity. The market will be there, but competition will be stiff. Just having the best technology on its own isn’t enough.
Investors in Hyliion stock will need to be patient. They will need to take the long view. They almost certainly will see some sharp pullbacks and some big rallies. But the potential prize is worth that effort as well as the risks.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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