If you don’t trust the current stock market, Hyliion (NYSE:HYLN) stock is not for you. If you do, Hyliion stock probably should move to the top of your list.
After all, Hyliion stock offers so many of the attributes shared by the best-performing stocks of recent years. Massive market opportunity? Check. Potentially transformative technology? Check. The ability to “disrupt” existing incumbents? Check, check.
But there is no shortage of investors who believe those best-performing stocks have run too far. Those gains have led to massive gains — some might say “bubbles” — in stocks that look like transformative disruptors, but whose stories for various reasons seem to fall apart upon closer inspection.
That case too can be made for HYLN. Minimal revenue? Check. (In fact, year-to-date revenue is exactly zero.) Hot sector that’s drawn tons of retail interest? Check. Unproven ability to actually compete in the market? You get the point.
For years now, the market’s skeptics have lost out, and the optimists have won. As a classic optimists’ play, Hyliion stock can keep gaining, if and only if that trend holds.
The Case for Hyliion Stock
There’s a lot to debate when it comes to Hyliion stock, but one thing is clear: HYLN will soar if the company can meet its potential, and its projections.
Hyliion is developing electrified powertrains for Class 8 trucks (commonly known as “semis.”) Those powertrains can be added to custom-built new trucks. More importantly, they can be retrofitted to existing vehicles that run on compressed natural gas.
That latter feature is important. After all, fleet operators financially can’t simply switch to electric trucks from diesel-powered engines all at once, even with the promised lower total cost of ownership. Electric truck manufacturers thus run the risk of mostly waiting for replacement truck needs to arise.
But Hyliion’s solution gets around that problem, at least for CNG models. And with fleet operators and their customers looking to lower their carbon footprints (and, yes, save some money as well), the nature of the offering should allow Hyliion to get to demand quicker.
Meanwhile, particularly after a recent pullback, HYLN looks potentially cheap. In a presentation from June released when its merger with Tortoise Acquisition was announced, Hyliion projected revenue of $2 billion in 2024. EBITDA (earnings before interest, taxes, depreciation and amortization) is targeted to come in around $600 million.
Given minimal capital expenditure requirements, that in turn suggests substantial free cash flow. It’s not unreasonable to believe that were Hyliion to hit those marks, the company’s market capitalization could clear $20 billion (10x revenue and 35x EBITDA). In that scenario, the Hyliion stock price would be well past $100, against a current $18.
So Many Questions
Of course, the fact that HYLN trades at $18 itself is proof that the market doesn’t trust those targets. Skepticism abounds, for good reason.
After all, those targets are developed by Hyliion itself. A more sober view raises a number of questions and concerns.
Notably, we’ve heard a similar story quite recently from Nikola (NASDAQ:NKLA). The business models are not quite the same, but Nikola too promised to revolutionize the trucking industry. A short-seller highlighted a number of questionable claims from the company, the “halo” around Nikola faded, and NKLA stock crashed 80%.
Hyliion was the target of a different short report, which itself highlighted points of concern. Notably, until 2016 Hyliion was working on the trailer of the truck, not the tractor. It’s not entirely clear why the company pivoted (though one assumes the tractor business didn’t work out), but Hyliion has kept the same not-yet-proven claim of 30% savings on fuel.
That report aside, there are obvious questions. Hyliion has a market capitalization just shy of $3 billion, yet year-to-date has spent just $8 million on research and development. It promises to revolutionize Class 8 drivetrains, yet has only ten patents and 17 outstanding applications. In fact, the patents (according to the short seller) apply to the former business model.
And of course, there’s competition. Auto parts giant Dana (NYSE:DAN) invested in and partnered with Hyliion, but has developed its own electric platform. PACCAR (NASDAQ:PCAR), the owner of the Peterbilt and Kenworth nameplates, can produce its own electric and hydrogen models. Why will Hyliion win?
Picking a Side
Of course, those concerns have an echo of another EV story as well, that of Tesla (NASDAQ:TSLA). For years, skeptics scoffed at Tesla as a transformative company. Elon Musk overpromised too much. Legacy auto manufacturers eventually would crush their upstart competitor. Tesla wasn’t profitable.
Those skeptics missed out (or worse, if they shorted TSLA). The believers won big. Tesla now has a market capitalization of $650 billion.
To be sure, it is highly unlikely (to be generous) that Hyliion proves to have the same story. Still, investors who have bet on potential have won most of those bets. If Hyliion delivers, it will create a new crop of winners, even if that does seem like an awfully big “if.”
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.