InvestorPlace’s Luke Lango recently discussed Hyliion Holdings (NYSE:HYLN), a manufacturer of electric-truck powertrains and batteries. Lango believes that the company’s new battery module could be precisely what the doctor ordered for HYLN stock.
Specifically, my colleague sees this latest product initiative as the pathway to regaining a $50 stock price, a level it hasn’t seen since the go-go days last fall.
The markets have been so crazy in 2021; I haven’t a clue whether we’re at the beginning of another leg up or resuming the bear market that’s been trying to gain traction in the first three months of the year.
At this point, investors should tread carefully in either direction. In the meantime, I’ll address Lango’s prediction of a $50+ stock price.
HYLN Stock at $50 Valuation
As I write this, Hyliion has a market capitalization of $2.33 billion based on 169.3 million shares outstanding and a $14.19 share price. A $50 stock price translates to a market cap of $8.5 billion.
Lango’s 10-minute Quick Picks episode suggests a potential $30 billion market cap by the end of 2030. That’s based on capturing 20% of the 500,000 alternative-drive heavy-duty commercial vehicles he estimates will be sold in 2030. At $60,000 a pop, Hyliion should generate $6 billion in 2030 sales and EBITDA of $2.1 billion.
Based on a $30 billion market cap in 2030, we’re talking about 5x sales and 15x EBITDA.
How realistic is that?
Well, if you use Tesla’s past five years as a possible model, it has an average price-to-sales ratio of 6.5. However, if you remove the highest and lowest P/S — 25.5x (2020) and 3.0x (2019) — you get an average P/S of 4.3x, less than the 5x sales for Hyliion in 2030.
I don’t know if you’ve noticed, but TSLA stock is down 35% over the past month through March 8. Investors have decided that even the world’s largest car company by market cap isn’t worth 20x sales.
Let’s Assume Its 2030 Market Cap of $30 Billion Is Right On
Tesla’s share count over the past decade grew by 26% annually, from 95.3 million shares in February 2011 to 959.9 million shares in February 2021. I’ll estimate that Hyliion’s share count will compound at the same rate of growth.
Based on 169.3 million shares today, Hyliion would have 1.7 billion shares at the beginning of 2031. At $30 billion, we’re talking about a share price of $17.65 in a decade.
It’s hard to imagine Hyliion’s stock moving sideways under this scenario, so I don’t think a $30 billion projection is outrageous. It works out to a compound annual growth rate of 29.1%.
If Hyliion hits Lango’s 100,000 annual truck sales, it shouldn’t be an issue. And that doesn’t take into account the potential of its battery module, which InvestorPlace’s David Moadel recently suggested could be a “category dominator.”
The Bottom Line
I last wrote about HYLN stock at the end of January. At the time, I wondered whether HYLN was an $18 or $60 stock, based on its high and low for the previous six months.
I suggested that buying its stock above $18 was pure speculation. In the article before that, I argued it was an “attractive speculative play” between $15 and $18.
Now trading approximately $1 below that lower limit of $15, I definitely think it’s a buy, but only if you’ve got patient capital.
In November, Hyliion announced Q3 2020 earnings. Although it had delivered 13 0f 20 trucks equipped with its hybrid-electric system, it opted to hold off booking the $1 million worth of revenue it would generate from those 20 trucks until they were all delivered.
Regular production for its initial fleet shipments is expected to begin in 2022. EBITDA (earnings before interest, taxes, depreciation and amortization) profitability could come sometime between 2022 and 2024.
While it would be nice to see $50 by the end of 2024 — a compound annual growth rate of 41% — I would bet my last dollar that shareholders would be happy with a 28% CAGR and a $35 share price by December 2024.
Under $15, I think HYLN remains an excellent long-term speculative buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.