XL Stock Is Positioned Well to Climb Higher

XL Fleet (NYSE:XL), which specializes in selling and developing electric powertrains for commercial trucks, has a strong customer base and a significant amount of revenue, providing validation of its technology and products. Moreover, the company’s financial results should be boosted by the electric vehicle boom in the U.S., lifting XL stock in the process.

Depth of field shot of an electric vehicle being charged.
Source: Shutterstock

Given these points, I recommend that longer-term investors buy the shares. However, given the stock’s high valuation and the fact that the EV stock surge appears to be easing for now, some investors may want to wait a little longer for the shares to drop further before purchasing them.

Proven Results

Unlike many other companies in the EV sector, XL has several top-notch customers and is generating a meaningful number of sales.

As another InvestorPlace contributor, David Moadel, pointed out in his Jan. 26 column, XL has “200+ fleet customers.” More than 3,000 vehicles currently use XL Fleet’s technology, and the company expects to sell over 9,200 units of its products this year.

What’s more, XL has many huge, prominent customers, including Coca-Cola (NYSE:KO), PepsiCo (NASDAQ:PEP), the city of Boston and Yale University. Given the large size of these entities’ fleets, XL should be able to sell tens of thousands of additional powertrains in coming years.

And because these customers are so well known, other companies and government entities are likely to hear about their transactions with XL and also seek to buy products from the powertrain maker.

Meanwhile, indicating that the company’s business is rapidly expanding, for the first nine months of 2020, XL’s top line came in at $9.47 million, up from $6.9 million during the same period a year earlier.

Of course, as I mentioned previously, the fact that the company, unlike many EV firms, is generating meaningful sales is certainly an important feather in its cap.

For example, in the first nine months of last year, another company that specializes in making electric powertrains for trucks, Hyliion (NYSE:HYL), reported no revenue. Because, as I mentioned earlier, XL’s technology and products are validated by its meaningful top line, I’d far rather invest in XL than Hyliion at this point.

Additionally, XL’s gross profit came in at $759,000 for the first nine months of 2020, versus a loss of $257,000 for the same period a year earlier. I believe the increase suggests that the company’s profitability is meaningfully improving, while its bottom line is likely to eventually turn positive as its sales climb. As a result, I believe that the significant increase in XL’s gross profit is quite positive for XL stock.

A Strong Environment for EVs

As XL’s partial customer list indicates, many large companies, utilities, and governments in the U.S. are embracing electric trucks, in order to be “greener” and, in some cases, to reduce their expenses by paying less to power their fleets.

After President Joe Biden recently signed an order that will transition the entire federal fleet to EVs, more companies and governments, following the president’s lead, will likely look to embrace EVs more fully. And XL could potentially land a contract or two with the federal government in the coming quarters, providing a major boost for XL stock.

The Bottom Line on XL Stock

Over the longer term, XL has multiple, strong, positive catalysts that should meaningfully boost its shares. Nonetheless, the company does, at this point, have an elevated market capitalization of $2.5 billion.

Moreover, the rally of speculative stocks in general and of EV stocks seem to be taking a breather now. For example, since its peak on Jan. 25, Tesla stock had lost nearly 10%.

XL itself lost nearly 1o% since Jan. 26 peak. Consequently, in the current environment, investors may want to wait a week or two for an additional pullback by XL before taking a bullish position in the shares.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Plug Power, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.


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