Hyliion (NYSE:HYLN) stock has looked like one to avoid in my eyes the few times that I have written about it. But given that it has secured even more funding, HYLN stock is now in an even stronger position.
I’ll admit that I’m still skeptical of its business model and its retrofit hybrid EV powertrains. The company basically has as much to prove now as it did six months ago.
But for investors who do believe that they will sell, now is the perfect time to establish a position in HYLN stock. Here’s why.
Cash Position Went From Strong to Stronger
Hyliion is strong from the perspective of operational funding. When the firm completed the strategic combination between itself and Tortoise Acquisition Corp. at the beginning of October, it was flush with cash. The deal yielded $520 million in proceeds which fuel Hyliion’s commercialization efforts of its hybrid retrofit powertrains for class 8 vehicles. It is clear that the markets were interested in Hyliion’s ability to commercialize its technology and meet what it estimates to be an $800 billion market.
Long story short, Hyliion used less than $1.5 million in net cash for operating activities through the first three quarters of 2020. Net cash increased by more than $116 million in the same period as a result of the SPAC merger.
The company is financially sound. The only question is if Hyliion’s powertrains will sell.
Even though Hyliion was already in a fiscally enviable position, its coffers recently received a boost. On Jan. 7 Hyliion announced that it issued 12.5 million shares of common stock upon the exercise of public warrants. Hyliion received $142 million from the transaction. The flip side is that 8% stock dilution occurs. All in all, I believe it is relatively unimportant for both sides.
Holders of HYLN stock prior to the warrant redemption now have 8% less earnings coming to them. Those hypothetical earnings are going to come from sales. And Hyliion now has around $660 million in cash.
Both parties still have the same problem: the time between now and commercialization. Essentially the warrant redemption is inconsequential in my mind. Hyliion already had enough money to move forward with its plans. Investors were already on board. Nothing changes. Hyliion simply has to commercialize and sell, sell, sell.
But that’s not going to happen for some time.
Now Is a Compelling Entry Point
Hyliion’s share price looks much more compelling now than it has at any time in the last six months. The stock was the beneficiary of a lot of hype last summer. EV SPACs were hot and the mere knowledge that one was coming to market seemed to be enough to send share prices skyrocketing.
And so, Hyliion ran up from the teens to $55 when it became publicly traded as a subject of, and not an exception, to the rule. It stayed in the high $40s and $50s for all of September. Then it dropped precipitously back down to the teens where it has remained for about two months.
The company has passed through the last two quarters, gained a lot of cash, and returned to a price it had prior to the SPAC announcement. If you purchased shares around then, then wait to see any return will be long, if it occurs at all. But there is a lot of logic in establishing a position now if Hyliion’s business model speaks to you.
A Speculative Play
If Hyliion’s model does appeal to you, buy in now and judge against sales projections. Right now we only know that Hyliion installed eight of its EV retrofit powertrains across four operators. This pilot test will lead to data which, if it succeeds, should allow Hyliion to go out and make sales.
Page 28 of the company’s investor presentation states that it anticipates 20 sales in 2020 and 300 in 2021. Q1 2021 earnings will be out soon. That will let you know if the company did or did not hit that sales goal. And the 300 in 2021 will be verifiable in the not-too-distant future.
The price right now shouldn’t dip because Hyliion simply has piles of cash. Even if they miss that 20 unit sales goal for 2020 I think shares won’t move much. I don’t think shares have much potential to go down until after 2021 if Hyliion misses the 300 sales mark. You can buy these for a year and have a really strong shot at price appreciation with little downside.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
