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Hyliion Looks Enticing After Falling 70% From Its 52-Week High
After a hyperbolic 2020, HYLN shares have cooled off
By Faizan Farooque Feb 2, 2021, 6:00 am EST
Last year was a roller coaster for the electric car industry and it doesn’t look like anything is changing. Elon Musk became the world’s richest person, nudging fellow space tycoon Jeff Bezos from the top spot. However, it may seem surprising that amid this backdrop, that Hyliion Holdings (NYSE:HYLN) stock is down 70% from its 52-week high.
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However, this is not a unique phenomenon. The last year was an unprecedented one for electric vehicle (EV) stocks. And now, finally, these companies are losing steam, and valuations are returning to earth. That’s why stocks like HYLN are once again becoming enticing prospects.
But the fall in stock price is not the only reason you should get excited about this one. Unlike Tesla (NASDAQ:TSLA) and Nikola (NASDAQ:NKLA), Hyliion is not looking tocompletely change the Class 8 truck market.
All the data coming out in the last few years points to an all-electric future. However, the infrastructure needed for that future requires billions of dollars and will take years to build. We already have over 700 natural gas fueling stations in North America compared to the less than 10 electricity and hydrogen stations dedicated to Class 8 vehicles.
In my previous articles, I lamented that HYLN stock’s growth doesn’t respect the company’s underlying fundamentals. However, with share prices falling so spectacularly, it becomes an interesting play in an overcrowded market.
HYLN Stock: Carving Your Own Path
Hyliion made its debut in a year when two investing concepts came into vogue. Special purpose acquisition companies, or SPACs, and EVs gained unprecedented popularity and capital last year. We will have to wait and see if 2021 ends up similarly. However, the last year was the ultimate “make hay while the sun shines” moment for EVs.
On Oct. 1, Hyliion completed its business combination with Tortoise Acquisition, a blank-check shell corporation designed to take companies public without going through the traditional IPO. As a result of the merger, Hyliion received $520 million after expenses to fund its business plan.
The traditional IPO process is a bit more complicated and more rigorous, which helps protect investors. Nikola (NASDAQ:NKLA), a manufacturer of electric and fuel cell trucks, is a classic case of overpromising and underdelivering.
Nikola founder Trevor Milton had to step down as chairman after short-seller Hindenburg Research published a report that accused Milton and the startup of misleading investors. Late last year, the company received subpoenas from the SEC and the Department of Justice in connection with the allegations. The news highlighted the dangers of investing in risky SPAC plays.
However, HYLN’s merger terms instill me with hope. Thomas Healy, the company’s 28-year-old founder, was barred from cashing in when the deal closed. He can sell 10% of his shares in six months, according to the lockup agreement. But he must wait two years to sell most of his stock.
Meanwhile, Hyliion’s first product, the V1 Hybrid system, doesn’t suffer from any design flaws as of yet. It also includes battery systems, control software, and data analytics.
Hypertruck ERX: The Long Game
The V1 Hybrid system is the lynchpin for revenues moving forward. According to its own estimates, there are 8 million trucks in operation, with 944,000 trucks sold annually — a replacement opportunity worth approximately $800 billion.
But its fully electric powertrain system, Hypertruck ERX, is a high growth prospect that is far more lucrative in the long run. You can select your fuel of choice, either natural gas or hydrogen. Thereafter, the generator will convert this fuel to electricity to power the truck. It will incorporate the same analytics platform as the V1 Hybrid system and build on it with its hybrid solution.
According to Hyliion, it will cost between $7 billion and $12 billion for electric and hydrogen infrastructure to be built out comparable to natural gas. That’s where Hyliion has an ace in the hole. It doesn’t require any new infrastructure. Instead, its plug and play products are a middle of the way option for fleet owners that are yet not convinced.
Hence, investing in HYLN stock becomes an almost defensive option.
An Attractive Entry Point
After going hyperbolic last year, HYLN stock is finally cratering back to earth. However, unlike several EV plays, Hyliion has a long-term story that an investor can latch onto. Shares have a 12-month consensus estimate of $22 per share. That’s a 30% upside from its current share price.
We don’t have a lot of earnings reports to base our decision on. In the third quarter of 2020, the company delivered a positive earnings surprise of 44.2%. However, these are early days. If you want to buy HYLN stock, you need to have a long-term vision.