Hyliion Holdings Corp. (NYSE:HYLN) stock is down 51% so far in 2021, consistent with my pessimistic position on SPACs: enthusiasm for businesses with poor fundamentals leads to a short-term rise of the stock, which soon deflates when reality kicks in.
I have said many times that I do not like SPACs, as their stock prices are often highly distorted compared to their fair value. Is HYLN stock an exception to this rule? If you want the fast answer, no. If you want why, read on.
I previously wrote about HYLN stock in November 2020. Based on the company’s fundamentals and its net losses I concluded, “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 my article posted the closing price of HYLN stock was $20.08. The opening price on Aug. 19 was $8.17. I was not enthusiastic with Hyliion then, and I am not supportive of them today either. Here is why.
HYLN Stock Risk Rises as Enthusiasm Falls
If you’re wondering whether the stock market bearishness view on alternative energy transportation company Hyliion has become overextended, it’s interesting to note that the current price of HYLN stock is about 10% below its original SPAC stock price of $10.
Much of what I write focuses on stocks that provide investing lessons. Hyliion is one such stock. With a 52-week high of $58.66, it’s a reminder that when a stock is in a textbook bubble, you should take your profits as soon as you can, because greed and wishful thinking can only harm you.
To those who bought shares of Hyliion near $10 and sold them at a much higher price, I want to congratulate them on their boldness and willingness to invest in a company with zero revenue and a promise that it will disrupt the future of the trucking industry. To the investors who bought HYLN stock at an inflated stock price and continue holding them, the lesson learned is always perform due diligence, and do not get carried away by your fear of missing out. Do not chase stock prices higher, especially shares of companies that have very weak fundamentals, and assume that history will repeat itself.
Financials: Lack of History and Trends
Hyliion recently reported Q2 financial results that show the company is losing money and has zero revenue. Burning cash to support its business operations is not positive, but the management appears to be optimistic at this critical inflection point. Thomas Healy, the founder and CEO, had this to say:
“After a strong start to the year, our team continues to execute effectively against the timelines for both Hybrid and Hypertruck ERX products. With the unveiling of our improved Hybrid powertrain and the debut of our Hypertruck ERX demo units both scheduled for the third quarter of 2021, we are at an exciting inflection point in Hyliion’s history.”
There is good news and bad news in these results. It’s important to keep in mind that Hyliion has only released quarterly revenue reports so far, so there aren’t any annual trends yet.
The company announced a 300-unit reservation for its Hypertruck ERX and gave further info on its development program. It also announced an all-electric configuration mode in line with California’s regulatory requirements and noted that it has enough liquidity on its balance sheet to fund commercialization plans for its Hybrid and Hypertruck ERX models. The company also says it’s on track to launch its hybrid electric powertrain in 2021.
As for revenue, though, the company has no good news to report. In fact, “while Hyliion expects to begin generating revenue from its improved Hybrid product after launch later this year, it does not expect the revenue generated in 2021 to be material.”
Net loss per share is 23 cents compared to a net loss of 11 cents for the same quarter one year ago. Loss from operations for the quarter grew to $23.4 million from $3.4 million from the year ago quarter. HYLN stock was also heavily diluted, with the number of shares increasing from 86.8 million to 172.3 million in the same period.
I can’t predict the future, but I like neither the financials nor the valuation of HYLN stock. Why buy new shares of a company with that hasn’t demonstrated that it can make money? My earlier investment thesis on the stock remains the same. Avoid it until revenue and profitability are seen in the data.
On the date of publication, Stavros Georgiadis, CFA 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.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.