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NKLA & HYLN Under the Lens: Is it Worth Betting on the Stocks Now?
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The year 2020 has been an amazing one for electric vehicles (EVs), with the auto industry getting more electrified than ever on the back of climate change concerns, stringent emission standards, favorable government policies and improvement in the EV infrastructure. With e-mobility trends getting hotter with each passing day, enterprises are seeing this as an opportunistic time to raise public funding, with investors hunting for new stocks .Lately, IPO filings by green vehicle makers have been on the rise to capitalize on the EV frenzy, with many stocks including Nikola Corporation (NKLA - Free Report) , Hyliion Holdings Corporation (HYLN - Free Report) ,Li Auto (LI - Free Report) and Xpeng Motors (XPEV - Free Report) having made their U.S. stock market debut this year.
With many new entrants emerging in the EV space, competition is soaring and retail investors have been aggressively buying EV stocks, with seemingly no regard for valuation. But certainly, not all stocks in the EV space are likely to live up to the hype. In this write-up, we put the spotlight on Nikola and Hyliion, both of which carry a Zacks Rank #3 (Hold). Let’s see how the stocks are positioned in terms of fundamentals.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Background
Both Nikola and Hyliion went public this year through special purpose acquisition company merger. Hydrogen truck maker, Nikola got listed on Nasdaq after a reverse merger with VectoIQ on Jun 3. EV truck company, Hyliion made its debut much in the same manner as Nikola. Hyliion hit the NYSE on Oct 2 by merging with Tortoise Acquisition Corp. While the business operations of both the companies are quite similar, Nikola intends to manufacture electric trucks and Hyliion will be engaged in supplying electrified powertrain solutions for trucks and EVs.
Nikola aims to develop hydrogen fuel-cell powered electric trucks, and build and operate hydrogen filling stations to refuel vehicles. Conversely, Hyliion does not intend to manufacture vehicles but just wants to offer electric and hybrid powertrain solutions to truck makers in a cost-effective way. Considering Hyliion’s long-standing relation with Dana Incorporated (DAN - Free Report) , the latter intends to provide its state-of-the-art manufacturing capabilities to enable Hyliion achieve full volume production of its powertrain systems.
NKLA & HYLN Fail to Impress Post Initial EV Mania
While Nikola and Hyliion garnered massive attention from investors initially on the back of promising future developments and the EV euphoria, the momentum could not be sustained.
Nikola captured the imagination of speculators and day traders who took its shares from an intraday high of $93.99 attained on Jun 9 to a low of $17.37 on Dec 1. The company ended the session at $18.31 a share yesterday, plunging around 46% since its debut. The firm appears to have been a double whammy of disaster with an enormously stretched valuation from overexcited investors and traders combined with securities fraud allegations by Hindenburg Research. Following the accusations, the then CEO of the firm, Trevor Milton resigned, which all the more felt like an admission of guilt. Amid such developments, General Motors (GM - Free Report) backed out of the original deal with Nikola and would no longer manufacture the latter’s Badger truck. With this, Nikola’s ambitious Badger EV pickup project has been abandoned altogether.
Meanwhile, Hyliion shares have tanked 54.6% since its debut. Such is the frenzy for EVs that Hyliion — which does not have anything to show for itself in terms of saleable product and is not making any revenues — started witnessing meteoric gains in share price since it announced its IPO plans in June. Of course, a stock could not just run on hype and went into correction eventually.
Disappointing Operating Results
For the nine months ended Sep 30, Nikola generated revenues of $95,000, that too from the installation of solar panels for the ex-CEO Milton. Total operating expenses skyrocketed around 292% year over year to $236 million during the said period. Net loss widened from $62.3 million in the comparable year-ago period to $237.3 million.
Conversely, Hyliion has not generated any revenues yet. For the nine months ended Sep 30, the firm’s operating expenses totaled $11.8 million, up around 37% year over year. Net loss widened to $18.7 million from $10 million incurred during the corresponding period of 2019.
NKLA Beats HYLN on Balance Sheet Strength
Hyliion is highly leveraged, which restricts the firm’s financial flexibility to tap growth opportunities. Importantly, the company’s liability exceeds the assets, as is evident from its debt ratio of more than 1. Meanwhile, Nikola displays high liquidity and almost nil leverage. Cash and cash equivalents of Nikola grew to $907.5 million as of Sep 30, 2020 from $85.7 million as of Dec 31, 2019.
Progress & Prospects
Nikola is on track with the development of its 1-million-square-foot plant in Coolidge, AZ. The company expects completion of the construction of Phase 1 by 2021-end, with entire completion to be achieved by mid-2023. Nikola is optimistic about commencing production and sale of the Nikola Tre — a fully-electric truck — by fourth-quarter 2021. The Zacks Consensus Estimate for 2021 loss per share is pegged at 4 cents, which indicates an 8% year-over-year deterioration.
Meanwhile, Hyliion expects to generate sales of a mere $1 million in 2020 and $8 million in 2021. It forecasts revenues of $344 million in 2022 and more than $2 billion in 2024. The company projects pretax loss in 2020 and 2021. It envisions generating EBITDA of $8 million in 2022, which will rise to $602 million by 2024. The Zacks Consensus Estimate for 2021 loss per share is pegged at 72 cents, indicating 4.4% wider year-over-year loss.
Final Thoughts
At the moment, neither Nikola nor Hyliion seems to be a safe bet. Neither their fundamentals are strong enough nor have they stood the test of time. While Nikola fares better in terms of financials, its image is certainly tarnished and the stock may be headed further to extreme negative returns. Although the company has redesigned its strategy and stated that it “remains committed to achieving” a set of milestones originally configured by it, it will take time for investors to reinstate their faith in the company.
Meanwhile, Hyliion claims that its business model is much efficient as the cost of developing natural gas-electric powertrain solutions and battery management systems is less than that of manufacturing vehicles. However, one should not forget that meaningful deliveries are still a couple of years away. Indeed, Hyliion has a clean reputation and a simpler business model but it doesn’t have a proven track record. Any possible delays in the delivery deadline and production challenges might create problems. As it is, the firm’s lofty valuation raises a red flag. Hence, a further pullback in the share price of the stock would not come as a surprise.
While both the companies aim to become distinguished carbon-free transportation solution providers, it would be better if investors give the stocks some time to prove their mettle instead of buying into the EV hype.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.4% per year.
These 7 were selected because of their superior potential for immediate breakout.
Image: Bigstock
NKLA & HYLN Under the Lens: Is it Worth Betting on the Stocks Now?
The year 2020 has been an amazing one for electric vehicles (EVs), with the auto industry getting more electrified than ever on the back of climate change concerns, stringent emission standards, favorable government policies and improvement in the EV infrastructure. With e-mobility trends getting hotter with each passing day, enterprises are seeing this as an opportunistic time to raise public funding, with investors hunting for new stocks .Lately, IPO filings by green vehicle makers have been on the rise to capitalize on the EV frenzy, with many stocks including Nikola Corporation (NKLA - Free Report) , Hyliion Holdings Corporation (HYLN - Free Report) ,Li Auto (LI - Free Report) and Xpeng Motors (XPEV - Free Report) having made their U.S. stock market debut this year.
With many new entrants emerging in the EV space, competition is soaring and retail investors have been aggressively buying EV stocks, with seemingly no regard for valuation. But certainly, not all stocks in the EV space are likely to live up to the hype. In this write-up, we put the spotlight on Nikola and Hyliion, both of which carry a Zacks Rank #3 (Hold). Let’s see how the stocks are positioned in terms of fundamentals.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Background
Both Nikola and Hyliion went public this year through special purpose acquisition company merger. Hydrogen truck maker, Nikola got listed on Nasdaq after a reverse merger with VectoIQ on Jun 3. EV truck company, Hyliion made its debut much in the same manner as Nikola. Hyliion hit the NYSE on Oct 2 by merging with Tortoise Acquisition Corp. While the business operations of both the companies are quite similar, Nikola intends to manufacture electric trucks and Hyliion will be engaged in supplying electrified powertrain solutions for trucks and EVs.
Nikola aims to develop hydrogen fuel-cell powered electric trucks, and build and operate hydrogen filling stations to refuel vehicles. Conversely, Hyliion does not intend to manufacture vehicles but just wants to offer electric and hybrid powertrain solutions to truck makers in a cost-effective way. Considering Hyliion’s long-standing relation with Dana Incorporated (DAN - Free Report) , the latter intends to provide its state-of-the-art manufacturing capabilities to enable Hyliion achieve full volume production of its powertrain systems.
NKLA & HYLN Fail to Impress Post Initial EV Mania
While Nikola and Hyliion garnered massive attention from investors initially on the back of promising future developments and the EV euphoria, the momentum could not be sustained.
Nikola captured the imagination of speculators and day traders who took its shares from an intraday high of $93.99 attained on Jun 9 to a low of $17.37 on Dec 1. The company ended the session at $18.31 a share yesterday, plunging around 46% since its debut. The firm appears to have been a double whammy of disaster with an enormously stretched valuation from overexcited investors and traders combined with securities fraud allegations by Hindenburg Research. Following the accusations, the then CEO of the firm, Trevor Milton resigned, which all the more felt like an admission of guilt. Amid such developments, General Motors (GM - Free Report) backed out of the original deal with Nikola and would no longer manufacture the latter’s Badger truck. With this, Nikola’s ambitious Badger EV pickup project has been abandoned altogether.
Meanwhile, Hyliion shares have tanked 54.6% since its debut. Such is the frenzy for EVs that Hyliion — which does not have anything to show for itself in terms of saleable product and is not making any revenues — started witnessing meteoric gains in share price since it announced its IPO plans in June. Of course, a stock could not just run on hype and went into correction eventually.
Disappointing Operating Results
For the nine months ended Sep 30, Nikola generated revenues of $95,000, that too from the installation of solar panels for the ex-CEO Milton. Total operating expenses skyrocketed around 292% year over year to $236 million during the said period. Net loss widened from $62.3 million in the comparable year-ago period to $237.3 million.
Conversely, Hyliion has not generated any revenues yet. For the nine months ended Sep 30, the firm’s operating expenses totaled $11.8 million, up around 37% year over year. Net loss widened to $18.7 million from $10 million incurred during the corresponding period of 2019.
NKLA Beats HYLN on Balance Sheet Strength
Hyliion is highly leveraged, which restricts the firm’s financial flexibility to tap growth opportunities. Importantly, the company’s liability exceeds the assets, as is evident from its debt ratio of more than 1. Meanwhile, Nikola displays high liquidity and almost nil leverage. Cash and cash equivalents of Nikola grew to $907.5 million as of Sep 30, 2020 from $85.7 million as of Dec 31, 2019.
Progress & Prospects
Nikola is on track with the development of its 1-million-square-foot plant in Coolidge, AZ. The company expects completion of the construction of Phase 1 by 2021-end, with entire completion to be achieved by mid-2023. Nikola is optimistic about commencing production and sale of the Nikola Tre — a fully-electric truck — by fourth-quarter 2021. The Zacks Consensus Estimate for 2021 loss per share is pegged at 4 cents, which indicates an 8% year-over-year deterioration.
Meanwhile, Hyliion expects to generate sales of a mere $1 million in 2020 and $8 million in 2021. It forecasts revenues of $344 million in 2022 and more than $2 billion in 2024. The company projects pretax loss in 2020 and 2021. It envisions generating EBITDA of $8 million in 2022, which will rise to $602 million by 2024. The Zacks Consensus Estimate for 2021 loss per share is pegged at 72 cents, indicating 4.4% wider year-over-year loss.
Final Thoughts
At the moment, neither Nikola nor Hyliion seems to be a safe bet. Neither their fundamentals are strong enough nor have they stood the test of time. While Nikola fares better in terms of financials, its image is certainly tarnished and the stock may be headed further to extreme negative returns. Although the company has redesigned its strategy and stated that it “remains committed to achieving” a set of milestones originally configured by it, it will take time for investors to reinstate their faith in the company.
Meanwhile, Hyliion claims that its business model is much efficient as the cost of developing natural gas-electric powertrain solutions and battery management systems is less than that of manufacturing vehicles. However, one should not forget that meaningful deliveries are still a couple of years away. Indeed, Hyliion has a clean reputation and a simpler business model but it doesn’t have a proven track record. Any possible delays in the delivery deadline and production challenges might create problems. As it is, the firm’s lofty valuation raises a red flag. Hence, a further pullback in the share price of the stock would not come as a surprise.
While both the companies aim to become distinguished carbon-free transportation solution providers, it would be better if investors give the stocks some time to prove their mettle instead of buying into the EV hype.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.4% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>