Hyliion (NYSE:HYLN) stock has dropped a good deal since its SPAC merger closed on Sept. 28. At the time it was at $48. But at the end of last week, it was down to $24.44. Don’t expect Hyliion stock to be a home run right away. As it stands, the stock looks to be 28% over fair value.
Since the merger closed, the company’s Q3 report, issued on Nov. 11, updated shareholders on some developments. For example, right now there are 153.9 million shares outstanding.
Revised Market Cap and Valuation
That implies that the pro forma market capitalization is now $3.893 billion, not including warrants outstanding. Apparently, there are about 18.31 million warrants which can be exercised at $11.50 per share, according to Hyliion’s latest 10-Q.
Therefore these warrants are now “in the money”, and using the “treasury stock method” we can estimate their net effect.
For example, about 8.613 million shares would be bought back using the $210.5 million proceeds from the warrants (i.e., $210.5 million divided by $24.44). That means that there will be a net addition of 9.697 million shares from the warrants.
Therefore, the “treasury stock” method of calculating market cap, now using 163.597 million shares outstanding, is $3.998 billion, or basically $4 billion.
To put it bluntly, that is simply too high a market value for a company with just $520 in net cash and no earnings. In fact, Hyliion reported it had made just eight electric vans this past quarter.
As I pointed out in my article last month, Hyliion is facing both a slow ramp and tough competition.
Hyliion’s Forecasts and Competition
Hyliion makes electrified powertrain solutions for Class 8 commercial vehicles. But here is the problem: there are a number of competitors that also do this. These include XL Fleet, which has a SPAC merger deal with Pivotal Investment Corp (NYSE:PIC), Workhorse (NASDAQ:WKHS) and Nikola (NASDAQ:NKLA).
Moreover, Tesla (NASDAQ:TSLA) is going to produce a semi-truck EV that could compete with Hyliion sales efforts. In addition on Page 30 of the company’s slide presentation, Hyliion lists a number of supplier and truck OEM competitors.
In addition, Hyliion now faces competition from EV van maker Arrival Group which has a SPAC merger deal with CIIG Merger Corp (NASDAQ:CIIC). As I pointed out in my recent article, Arrival already has $1.2 billion in orders for its EV vans, including 10,000 vans ordered by United Parcel Service (NYSE:UPS). Arrival has a pro forma market cap of over $10.3 billion and will receive $669 million at the close of its merger.
Nevertheless, on Page 28 of the company’s slide presentation, Hyliion put forward a five-year forecast. It shows forecasts of its units, revenue, costs, and EBITDA (earnings before interest, taxes, depreciation, and amortization) until 2024 year-end.
For example, Hyliion’s forecasted units sold shoots up to 300 in 2021 and 6,600 in 2022.
Hyliion’s projects $2.09 billion in revenue by 2024 on page 28. Hyliion now has an enterprise value of $3.48 billion (i.e., $4 billion market cap minus $520 million in cash). Therefore, this puts Hyliion stock on an enterprise value-revenue multiple of 1.665x (i.e., $3.48 billion divided by $2.09 billion).
This multiple is higher than the average of its peers. For example, on Page 44 of Arrival Group’s presentation, the average multiple of the EV van industry is 1.3x.
What To Do With Hyliion Stock
Based on the analysis above it looks like Hyliion stock is at least 28% overvalued. That is because the difference between the 1.665 times enterprise value-revenue multiple and the EV industry average of 1.3x for 2024 is 28%.
Therefore, I would wait to see the company start producing revenue and see if it is on track with its projections. Moreover, at the same time, we will be able to compare it with some of its EV industry peers which are also coming online with their capital at roughly the same time.
Don’t expect Hyliion stock to be a huge success right away. The market is likely to take a wait-and-see approach.
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.
