It’s been about six weeks since I last wrote about Hyliion (NYSE:HYLN) in mid-April. HYLN stock has basically gone sideways in the interim. It’s up around 30 cents as I write this.
I argued that the company was a deep-value buy for speculative investors willing to risk 100% of their investment.
My rationale had everything to do with Hyliion’s hybrid system that converts Class 8 commercial trucks into electric vehicles.
The commercial conversion market has the potential to be huge, but here we are entering summer and Hyliion’s share price has been on a gradual downslope since early November.
Was I wrong about Hyliion? I’ll look at both sides of the argument.
Hell, Yes, I Was Wrong About HYLN Stock
While I hate admitting as much, it’s unavoidable in this business. If you’re right 60% of the time, you’re a rock star.
Anyway, I’m on record stating in March that it was a buy at $14. Since not much had changed about Hyliion’s story come the middle of April, I reckoned it was a buy at $10. No, you will not see me recommending HYLN in June if it falls to $7.
I could have saved myself a whole lot of aggravation by simply asking some of my InvestorPlace colleagues their thoughts about Hyliion.
Larry Ramer, who’s not afraid to call out stocks for being overvalued, recently stated that its hybrid and natural-gas-powered solutions might be too innovative to gain large-scale acceptance from the trucking industry. He concluded that its market capitalization of $1.5 billion was too rich given the question marks hanging over it.
Since Larry’s article, Hyliion’s market cap has increased by $250 million. But the thing is, my colleague isn’t necessarily negative about Hyliion’s business; he’s not keen on its valuation. If trading around $6, I think you could twist his arm to break open the bank and buy some of its stock.
Earlier in May, Alex Sirois suggested that investors had fallen out of love with special purpose acquisition companies (SPACs). As a result, both SPACs in the process of merging, and those like Hyliion that had actually merged and de-SPAC’d, their numbers were getting a much closer look.
What they’ve found in Hyliion’s case wasn’t good. He points to some confusion over the installation of eight retrofit deployments first mentioned in November. The results appear to be a mystery and new demo deployments are supposedly planned for later in 2021.
So, he thinks that something’s rotten in Denmark.
Both of my colleagues essentially say that the margin of safety is way too low for them to recommend HYLN stock. Can you blame them?
Patient Investors Will Be Rewarded
Hyliion put out a press release on May 20 that Detmar Logistics LLC, a Texas-based provider of logistics services for the oil & gas industry, had selected the company as its partner to electrify its fleet of more than 127 trucks over the next five years.
“Hyliion’s approach to electrification by making improvements to our existing semi-trucks makes the most sense for us,” said Detmar Logistics President and CEO Matthew Detmar. “We also see natural gas playing a significant role as an energy source for powering electric vehicles in the years ahead.”
As I said earlier, the commercial conversion business has the potential to be huge. In this case, Hyliion is installing 10 hybrid units on Detmar’s Volvo trucks at its headquarters in Austin. If that goes well, the rest of the fleet should be on deck.
Now, you can be cynical about this announcement and conclude that it’s nothing more than a public relations stunt on Hyliion’s part. But what does Detmar Logistics have to gain from this?
According to its LinkedIn page, it has between 201-500 employees. Large enterprises are defined as companies with 250 or more employees. So, even though I don’t know Detmar from Adam, it operates a decent-sized company. I don’t believe someone would put their name to a press release if it weren’t the real deal.
For this reason, I would argue that Hyliion remains a company with real potential. That doesn’t mean risk-averse investors should jump on the bandwagon.
However, if you understand risk, HYLN stock remains attractive at $10. If it falls to $7, I’d have a much harder time recommending it to any investor, but I don’t think it will.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.
