Hyliion Produces Products on Target, But It Needs to Earn Revenue

Hyliion (NYSE:HYLN) announced its earnings on Feb. 23, showing that the company had installed 20 truck hybrid electric vehicle (EV) units in 2020 as expected. But HYLN stock will move up or down in 2021 depending on how well it executes its commercialization plan.

This execution has to occur in 2021. HYLN will either succeed or not based on how quickly it can launch products into commercialization this year.

So, here’s what to expect from this company in the near future, as well as what to do with its stock.

HYLN Stock: Forecasts and Business Plan

Hyliion is not yet collecting revenue. However, its business plan portrays 300 installations in 2021 as well as $8 million in revenue (Page 28).

After that, revenue is expected to skyrocket to $344 million in 2022, with 6,600 truck units sold. The year after that, HYLN is supposed to do $1 billion with 16,500 units sold. So, in other words, revenue and units sold have to blast off this year and next year.

This is the main reason why HYLN stock has a huge market capitalization of $2.84 billion. This is based on 169.3 million shares outstanding as of Dec. 31 and it’s Feb. 23 close price of $16.81. So, it’s all about execution from here on out.

To that end, Barron’s recently reported on Hyliion’s new hybrid truck battery system, a technology that could allow trucks to recharge in 8 minutes or less. But the article also asserted that the company “doesn’t fear disruption.”

Barron’s point was that Hyliion is not concerned with analysts’ takes on whether its tech will be overtaken by competitors. For instance, Goldman Sachs had written a report earlier in February that “faster-than-expected progress in battery EVs and zero-emission technologies” could limit the company’s upside.

Why is Hyliion not concerned by this? The diversity of its operations. In addition to putting its new battery tech in its own vehicles, the company can become a battery supplier to other truck makers. That’s one reason why HYLN could stick the landing.

What Hyliion Is Worth

Based on its balance sheet and close price from Feb. 23, HYLN has a market cap of $2.836 billion and $591 million in cash and short-term investments. This gives the company an enterprise value (EV) of $2.245 billion.

Therefore, its EV-to-Sales multiple for 2024 is 1.07 times. This is based on Hyliion’s forecast of $2.091 billion in sales by 2024 (i.e., $2.245 billion divided by 2.091 billion).

However, the market average — according to a recent presentation by another alternative truck company, Arrival — is 1.3 times EV-to-Sales for 2023 (Page 44).

Therefore, applying a 1.3 multiple to Hyliion’s 2024 forecast results in an enterprise value of $2.718 billion (1.3 times $2.091 billion).

Next, we add back the $591 million in cash to derive the target equity market cap. This results in a market cap of $3.3 billion. Now, since there are now 169.316 million shares as of Dec. 31, the target market cap is $19.54 per share.

All in all, this math means that there is some upside left in HYLN stock. For example, from its Feb. 23 close of $16.81, the stock will be worth over 16% more at $19.54. From today’s price of around $15, it’ll be worth some 30% more.

What to Do with HYLN Stock

HYLN stock is selling where it will be worth within three years by 2024. But to make just 16% over three years is not a screaming bargain by any measure.

However, if the company reports Q1 earnings on target with its $8 million figure for this year, HYLN could shoot up. Essentially, the market wants to see if it’s on track to produce $300 million in revenue in 2022.

If it can do that, then HYLN’s $2.84 billion market cap will seem reasonable and possibly undervalued. But don’t forget that the market competitors will be quick on its heels.

A defensive investor, however, will look for a bargain purchase opportunity. Typically, it’s better to wait until a stock has at least a 33% discount to its underlying value. This allows the investor to make a 50% return (1 divided by (1-.3333) equals 1.50, or 50%). So, because of the risky situation, it’s best to wait until you see a clear path to that type of return with HYLN stock.

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

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.