Has the market’s bearishness on alternative energy transportation specialist Hyliion Holdings (NYSE:HYLN) become overextended? It was just shy of a year ago that HYLN stock was trading at $55 a share. Days ago, it closed July trading at $9.70.
From its peak to where shares stand today, Hyliion hemorrhaged nearly 83% of market value. For many investors, that may be a step too far. Sure, Hyliion is an aspirational play — and by that, I mean it has yet to clock in revenue (or pre-revenue if you prefer). At the same time, HYLN stock is tied to the broader societal and political sentiment to transition to zero emissions.
Beyond the discount against the peak, InvestorPlace contributor David Moadel noted that Hyliion entered the market through a reverse merger with Tortoise Acquisition, a special purpose acquisition company. Typically, SPACs command an initial offering price of $10 — comprised of an equity unit and a warrant — with shares having the potential to move dramatically higher once sponsors reveal the merger target.
Of course, the swing higher depends on whether the investment community approves of the deal. In this case, HYLN stock almost made a 6X move, starting from $10 and closing at its highest at $55.85. At least at one point, the public at large overwhelmingly thought that Hyliion was worth a serious wager.
As Moadel implies, the core narrative for HYLN stock remains intact. “Nothing in the company’s press releases suggests that Hyliion is in any sort of trouble. Someday, you might look back and wish that you had taken a position when the share price was this low,” he wrote.
I get the appeal. But still, the question stands: if HYLN stock is substantively attractive, why the hemorrhaging?
Caution Remains the Key to HYLN Stock
To be fair, a cheap price alone isn’t what attracts Moadel and those who wish to speculate on this former SPAC trade. As my colleague further pointed out, Hyliion announced a long-range version of its Hypertruck ERX. Moadel stated:
What do we mean by “long-range”? At product launch, this truck will offer 75 miles of all-electric range and over 1,000 miles of total range.
That 1,000-mile total range will enable freight hauling capabilities that are comparable to what you’d expect from diesel trucks.
“Moreover, the long-range Hypertruck ERX is plug-in capable. As a result, the fleets that deploy it will have the ability to recharge with low-cost renewable electricity from the grid.” The long-range Hypertruck sounds like a quite a deal on paper, which initially bodes well for HYLN stock. Nevertheless, some hurdles may impose significant headwinds.
First, I think there are still lingering questions about the accuracy of these claims, especially in real-world conditions. I’m not suggesting that Hyliion is playing games with its performance and capacity claims. However, investors ought to be careful since it wouldn’t be the first time an innovative firm got creative with its data, to put it diplomatically.
Second and more importantly, even if the Hypertruck and Hyliion’s modular add-on solutions to existing transportation vehicles are as good as advertised, it still requires cooperation; namely, fleet owners must take a chance and buy these intriguing yet unproven trucks and systems.
And what will convince those fleet owners? Another factor which Hyliion doesn’t control, which is the infrastructure buildout. While there are plenty of alternative fuel stations, they don’t cover the entire continental U.S. Therefore, fleet owners will be limited to popular trucking routes which feature such infrastructure.
That could be a problem for HYLN stock, especially with management trying to convince trucking businesses to take the leap of faith.
Where Will the Government Stand?
This isn’t to say that I’m against the idea of using alternative fuels to achieve net-zero emissions. In my opinion, natural-gas-based fuels for long-haul transportation makes more sense than fully electric-powered trucks at this moment.
But eventually, it cannot be helped that alternative fuels are transitional fuels. Increasingly, tech industries are focused on electric-powered everything. If so, the federal government has a difficult choice — build out alternative-fuel infrastructure that could be obsolete within a few decades or fully invest in all-electric infrastructure.
Personally, I see sustainable value in the alternative-fuel infrastructure arena. Here, you would be selling tickets to the game. But with HYLN stock, this is more of a who-will-win-the-matchup argument. That’s a tougher thesis, no matter how you cut it.
Of course, with everyone still in speculation mode, HYLN stock could move higher. But if you’re a conservative investor, you may want to wait a bit to ensure that the volatility has truly died down.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.