How High Can Hyliion Stock Go?

We own stock of Tortoise Acquisition Corp. (NYSE: SHLL), which is set to merge with Hyliion soon, and have been bullish on the company for a while now. Yes, happily bullish, if you look at the chart.

Maybe too much free time over the long weekend or just looking at the charts, but instead of just gloating over, we started thinking about how high can the stock go? Which may not be an ideal exercise to do in 2020, when ‘markets only go up’ but we tried nonetheless.

For the background, please read our previous note on Tortoise Acquisition Corp, especially if you are new to the company or our thoughts on the long-term potential offered by the two businesses.

How does Hyliion fare compare to Tesla’s valuation? Undervalued

As most of you may know by now, Hyliion is competing with Tesla (Nasdaq: TSLA) and Nikola Corporation (Nasdaq: NKLA) for the next generation renewable energy-based class 8 vehicles market, so we thought it’s apt to value Hyliion on a relative basis, instead of DCF or other fancier model that would have bored you to the tilt and come up with either similar results or results that we wanted to achieve.  

Tesla Inc.      
       
 201920202021202220232024
Vehicles 367,656 496,336 769,320 1,077,048 1,400,163 1,750,203
  35%55%40%30%25%
ASP $54,268 $44,500 $40,495 $37,660 $35,777 $34,704
  -18%-9%-7%-5%-3%
       
Auto Sales ($B) $20 $22 $31 $41 $50 $61
Non-auto Sales      
Leasing, Svcs. and Others $5 $5 $7 $8 $10 $11
As % of Auto Sales25%22%21%20%19%18%
       
Total Revenue $25 $27 $38 $49 $60 $72
Adj. EBITDA Margin12%13%14%15%15%15%
Adj. EBITDA ($B) $3 $4 $5 $7 $9 $11
For our internal use only

In our quest to find out how is Tesla being valued, we tried to do some back of the envelope calculations expecting Tesla can build and sell 1.75 million autos by 2024 and generate close to 15% adjusted EBITDA margin on those sales.

Tesla Inc. 
  
Market Cap. $239
Enterprise Value ($B) $245
  
P/ Sales 2024 3.3
P/ EBITDA 2024 22.2
  
EV/ Sales 2024 3.4
EV/ EBITDA 2024 22.8
For our internal use only

And if Tesla can achieve $72 billion of sales and 15% EBITDA margins by 2024, Tesla stock is trading close to 3.3 times 2024 sales and close to 23 times EV to 2024 adjusted EBITDA as the chart above shows.

Tortoise Acquisition (Hyliion)   
    
Shares outstanding (M)161  
Stock price$27  
Current Market Cap. $4  
Enterprise Value ($B) $4  
    
Co. Est. Sales 2024 ($B) $2.1Co. Est. EBITDA 2024 ($B) $0.6
P/ Sales 2024 (TSLA) 3.3EV/ EBITDA 2024 (TSLA) 22.8
Potential Market Cap ($B) $7.0Potential Market Cap ($B) $13.7
Potential stock price $43.3Potential stock price $85.1
For our internal use only

If we value Hyliion on similar valuation metrics, potential stock price based on price to sales come to almost $43 and $85 / share based on similar EV to 2024 adjusted EBITDA multiple.

Now we know that Hyliion will be manufacturing class 8 trucks and Tesla is into much bigger consumer auto market, so using similar trading multiple may be quite optimistic on our part, but then one can also argue that in 2024, Hyliion would be growing at a significantly higher growth rate and may deserve an even higher multiple than that of Tesla.

Please note that this is just an academic exercise and we are NOT forecasting anything. We tried to be lenient with Tesla projections to be conservative in getting to the potential upside for Hyliion.

How is Hyliion valued compare to Nikola? Extremely undervalued

Nikola Corp.   
    
Shares outstanding (M)424.5  
Stock price $58  
Current Market Cap. $25  
Enterprise Value ($B) $24  
    
Co. Est. Sales 2024 ($B) $3.2Co. Est. EBITDA 2024 ($B) $0.2
P/ Sales 2024 7.7EV/ EBITDA 2024 112.3
For our internal use only

If we go by Nikola’s projections for 2024, the stock is trading near 8 times 2024 sales and more than 112 times EV to 2024 adjusted EBITDA.

Tortoise Acquisition (Hyliion)   
    
Shares outstanding (M)161  
Stock price $27  
Current Market Cap. $4  
Enterprise Value ($B) $4  
    
Co. Est. Sales 2024 ($B) $2.1Co. Est. EBITDA 2024 ($B) $0.6
P/ Sales 2024 (NKLA) 7.7EV/ EBITDA 2024 (NKLA) 112.3
Potential Market Cap ($B) $16Potential Market Cap ($B) $68
Potential stock price $100Potential stock price $420
For our internal use only.

Now if we offer the trading multiple enjoyed by Nikola to Hyliion, the stock seems to offer significant upside from current levels, as the chart above shows. Almost 270% on the price to expected 2024 sales basis and much more based on price to expected 2024 adjusted EBITDA.

If you’re a Bull on Hyliion, you will want to point out that comparison between Hyliion and Nikola is more apt given the two companies are in the same space and may enjoy similar growth trajectory, but whichever way you look at it, it is easy to see that Hyliion seems undervalued compared to both Tesla and Nikola.

DISCLOSURE: This is purely an academic exercise for our internal use and we are NOT recommending buying or selling based on these projections. We own stock of Tortoise Acquisition Corp. and love Nikola’s website.

Resources:

Tortoise acquisition corp. projections are based on the company’s presentation, available here (link).

Nikola Corp.’s projections are based on the company’s presentation, available here (link).

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