Hyliion (NYSE:HYLN) is down almost $10 per share to $17.27 as of Jan. 8 from its recent peak of $27 on Nov. 23. This is a drop of 36% although HYLN stock is off 69% from its pre-merger peak of $55.85.
It might be worth looking at the stock now, especially if the truck EV parts maker can perform. I estimate the stock is worth 22% than today.
Keep in mind, as I wrote in my last article on Dec. 1, that HYLN stock has been trading well over its fair value. At the time I wrote that it was 28% overvalued. That was when HYLN stock was at $24.44.
Selling Below Fair Value
However, I should have made it clearer in my article where its fair value stood. I have been trying to be clear about my price targets since then.
But doing the math, my fair value at the time would be $19.09 per share. Therefore, its price today at $17.27 might make it below fair value.
However, this valuation assumes that Hyliion meets its own forecasts over the next several years.
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 (NYSE:XL), Tesla (NASDAQ:TSLA), Workhorse (NASDAQ:WKHS), Nikola (NASDAQ:NKLA), and of course, Arrival Group, which has a SPAC merger deal with CIIG Merger Corp (NYSE:CIIC).
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. Moreover, Hyliion projects $2.09 billion in revenue by 2024.
Assuming Hyliion can reach this, it is possible HYLN stock might be below fair value. To calculate this we have to adjust for risk. One way to do this is to discount future revenue by 15% to 20%.
Using a 15% discount factor, its 2024 revenue amounts to 57.175% of its revenue four years in the future. That means the present value of its 2024 revenue is $1,195 million (i.e., 0.57175 times $2,090 million).
Now we can determine if its valuation is too high.
Fair Value for HYLN Stock
Since Hyliion now has 153.9 million shares outstanding, its pro forma market cap at $17.27 on Jan. 8 is $2.658 billion. Moreover, as a result of its SPAC merger (special purpose acquisition company) on Sept. 29, the combined company has $520 million in cash on its balance sheet.
Therefore the pro forma enterprise value (EV) for HYLN stock is now $2.138 billion (i.e., $2,658 million minus $520 million in net cash).
Now we can see that HYLN stock has an EV-to-sales multiple of just 1.8 times. This is found by dividing its EV of $2.138 billion by the present value of its 2024 sales (see above) or $1.195 billion.
This means that HYLN stock is trading below 2 times sales on an enterprise value and present value basis. 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.
However, those figures do not include the present value of their future revenue. If we did not use this risk adjustment, HYLN stock would be at 1.03 times (i.e., $2.138 billion EV divided by $2.09 billion in 2024 projected sales).
Therefore, if we multiply the industry average of 1.30 times $2.09 billion in sales, the fair value EV is $2.717 billion. In addition, we have to add back to $520 million, for a total of $3.237 billion. This gives HYLN its fair value market value.
This means that HYLN stock is worth at least $21.03 per share (i.e., $3.327 billion divided by shares outstanding of 153.9 million.) This is 22% above its price of $17.27 on Jan. 8.
So, just to be clear, HYLN stock is worth $21.03, which provides 22% upside for the stock. It is always possible the stock could rise above its fair value. Therefore, HYLN stock might be worth looking for investors in electric vehicle stocks.
On the date of publication, Mark R. Hake has a long position in Tesla (TSLA).
Mark Hake runs the Total Yield Value Guide which you can review here.
