2020 has been a very volatile year for the U.S. stock market. Hyliion (NYSE:HYLN) stock is one example of a stock soaring too fast too high and then declining too fast as well. It lost almost half of its value in less than a month. The Hyliion stock price went from $10 in early June 2020 to making a 52-week high of $58.66 on Sept. 2, 2020, and then declined to $20 in October 2020.
As of today, the stock price is back in that $20 range. So what happened and should you consider buying Hyliion stock?
HYLN Stock News
With such a highly volatile stock price, odds are that there are a lot of significant headlines behind it. In this case, there was news that “In June 2020, Hyliion Inc. announced it would become a publicly traded company through the process of merging with Tortoise Acquisition Corp. (NYSE:SHLL), a special purpose acquisition company (SPAC),” as reported on TheStreet.
While an initial public offering, or IPO, process is more time-consuming, more strict in terms of financial reporting and financial performance, and more costly too, a special purpose acquisition company (SPAC) is an effective way to bypass some requirements of an IPO and go public.
This surge in the stock price was driven by the news the Hyliion stock is going public. But with a recent market capitalization of $3.1 billion, this stock presents several key factors to focus on.
A report by Deloitte about the global truck market outlook dated back in 2014 is optimistic, stating that “From now to 2024, annual growth of > 3% is expected in the global truck market, mainly driven by global GDP growth, estimated at 3.3% per year.”
Another Valuates report about Global Commercial Trucks Market Insights and Forecast to 2026 expects that sector to rise from $940.9 million in 2020 to $971.6 million by 2026.
Among the key factors contributing to the commercial trucks, market are the increased demand in construction and infrastructural activities. Remember that back in July, the House passed a $1.5 trillion infrastructure package, as reported in the New York Times. That bill stalled out, but a focus on infrastructure at the federal level will likely be beneficial for Hyliion stock.
It is interesting to mention the factors in a report on Linchpin titled “Trends Transforming The Trucking Industry Outlook in 2021.” Among some of the important factors it listed are the improvement of technology, rising fuel costs, and urbanization. For all these factors, Hyliion stock seems to have an edge.
But there is a big risk lying ahead for this stock, and it is one factor that I particularly place a lot of emphasis on — the fundamentals.
Hyliion Stock Fundamentals
As the company went public only a few months ago, there is a complete lack of financial data to study and analyze, making it hard to monitor trends in revenue, margins and growth. This makes the stock a special case for financial analysis. How to analyze a stock when you have insufficient financial data on it?
The only way is to focus on the latest quarterly results, for the third quarter of 2020 of Hyliion.
For the nine months ended Sept. 30, 2020, compared to Sept. 30, 2019, the company had the following key financial metrics reported:
- Loss in operations: $11.8 million in 2020, compared to $8.7 million in 2019.
- Net loss of $18.7 million in 2020 compared to a loss of $10 million in 2019
- Net loss per share, basic and diluted: -76 cents in 2020 versus -45 cents in 2019.
It is straightforward that the company is not profitable and that there is still not any guidance on future revenue. Broadly, we are still in the dark. It is just too early for any financial projections.
With the lack of financial information, what is my investment thesis on Hyliion stock? The answer follows shortly after mentioning another key financial factor that concerns me a lot.
Hyliion Wants to be a Key Player in the Alternative Fuel Infrastructure
Hyliion’s technology addresses a key problem in the transportation industry. That is how to lower emissions without the expense of fully replacing all existing assets and infrastructure in the trucking industry.
The company in its range of products has a fully electric Hypertruck ERX and hybrid powertrains, hybrid diesel, and a hybrid CNG powertrain. It offers battery solutions and battery packs. But while there is a lot of technology in these products, the company operates in a niche. The niche is electrified powertrain solutions for Class 8 commercial vehicles.
I am concerned about this niche, because the decision to operate in such a niche may be either a total success … or a total failure. We do not have yet sufficient data on metrics such as sales, growth, free cash flows to make conclusions that have a valid argument behind them.
Choosing a niche that most probably will face tough competition from other companies without having gained a dominant market share and without showing financial data to support a key competitive advantage makes Hyliion stock a very risky stock for now. I would avoid it until more financial data comes to shed more light about the prospects of the stock.
The recent move in the stock can only be attributed to speculation. The safest choice for prudent investors is to avoid this stock until we get sufficient data to analyze it better. The main argument is that without any sales reported yet, there are only operational expenses and losses. So buying the stock now is only buying the idea and the vision of the company. From a valuation analysis, not a great idea for investing.
For investors who are fine with speculation, Hyliion stock may be a good fit. For conservative investors and those who want to dig further before making a decision, the stock should be avoided for now.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article.