Hyliion (NYSE:HLYN) stock has had a very rough time in 201. So far, it is down 35% year-to-date as of April 9 and 21.7% in the last month alone. However, in the past year, HYLN stock has done reasonably well, up 8.2%. I believe it is poised to turn around as it is worth considerably more than its price today.
My estimate, as discussed in my article on Feb. 26, is that the stock is worth $19.54. This represents a potential gain of $8.82 from its price of $10.72 as of Apr. 9. That upside of 82.3% might take several years to occur but it does not take away from our estimate of the company’s value.
Hyliion’s target sales by 2022 are $322 billion by 2022. It expects to produce 6,600 unit sales by then.
If this comes to pass, the stock is now very cheap.
For example, based on its recent balance sheet, on Dec. 31, the company had 169.316 million shares outstanding. That puts its market capitalization at $1.815 billion. As it had $591 million in cash and short-term investments, the enterprise value is $1.224 billion. Therefore, its enterprise value-to-sales ratio for 2023 is just 3.8 times.
These sales are based on its hybrid diesel and hybrid compressed natural gas (CNG) solutions for large trucks, as shown in its well-put-together slide presentation. In addition, the company’s Hypertruck ERX uses both CNG and hydrogen-based fuel cells to generate electricity to power large trucks. The upward spike in sales that the company expects in the next several years is based on the adoption of this technology by large fleet customers.
By 2024 on page 28 of the slide deck, Hyliion expects sales will reach $2.091 billion. Given its $1.224 billion enterprise value today, the multiple is only 0.585 times 2024 forecast sales. That is very cheap.
By comparison, page 30 shows that its peers trade between 0.4 and 3.0 times next year’s sales. That averages 1.7x times. Moreover, one of its competitors, Arrival (NASDAQ:ARVL) shows on page 43 of its SPAC slide presentation that the peer average ratio is 1.3 times.
Using this ratio, HYLN stock should be worth $2.718 billion. After adding back the $591 million in cash and dividing this total ($3.3 billion) by 169.316 million shares, the stock price target is $19.54.
What to Do With HYLN Stock
However, this is based on 2024 sales. That is a long time in the future. We have to discount this to the present. Using a 15% interest rate, the 3.75 -year discount factor is 59.2%. Therefore, the present value for $19.54 in 2024 is $11.57 per share (i.e. 0.592 x $19.54 = $11.57). This is 7.9% above today’s price.
That may not seem like much upside. However, keep in mind that we discounted it by 15%. In other words, we expect the stock to rise to $19.54 by 2024 at a rate of 15% annually for almost four years. And that is just with a 1.3 times enterprise value-to-sales multiple by then.
This is just a baseline return. If sales really do rise to more than $2 billion in less than four years, HYLN stock will be valued at much higher than 1.3 times sales, probably more like 2 times sales. But to be conservative, we use this lower ratio today.
Therefore, although our present value target price is $11.54, by the end of this year the target price will be $12.33. In other words, expect to see HYLN stock rise at least 15% over the next year, assuming its sales hit their targets. And by the end of 2022, the stock would be worth at least $14.18 per share (i.e. $12.33 x 1.15).
So be patient with HYLN stock. It looks like it is at a trough. Assuming sales hit $322 million by 2022 and it appears the company is on track to meet its own forecasts, expect to see the stock rise. It is worth between $11.54 and $12.33 per share, or $11.94 – the average of its present value target and by the end of 2021. That is an expected return of 11.4% this year, which is very reasonable for most investors.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities 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.