I will start off today’s note with a positive tone on Hyliion (NYSE:HYLN) the company. I am a fan of their their Hypertruck and their hybrid retrofit concepts. However, I fell off the HYLN stock bandwagon a while back.
Source: Hyliion media
I closed my longs when it lost $18 per share and never looked back. In hindsight, that was good decision since it’s single digits now. However, today’s thesis is bullish. From this nasty predicament, I favor the upside opportunity more. The stock is now worth holding for the future.
HYLN didn’t fall off a cliff in a straight line. However, after last November it was clear that the bulls were not in control. I warned about it early suggesting technically challenging times ahead. The bulls needed to step up but they didn’t.
For a while the 12.5 million $11.5 warrants caused some confusion, but that variable is gone. Besides, price now is 21% below that watermark.
My December warning was timely because it it fell more than 30% from there. It had its shining moments like the February spike to $22, but didn’t last. From that high-to-low the stock lost 64%. Yesterday, it fell another 4% and remains under $10.
This is not for the lack of love. The HYLN stock fans are very loyal and they have great conviction in the management team. Even high-profile pros are on the bandwagon, so I wouldn’t short it. The right thing to do is either be with it or nowhere near it.
Things Could Look Up for HYLN Stock
It’s taking so long for the stock to recover. But an important ingredient may finally be happening right now. The first step of a rebound rally is to stop making new lows. HYLN stock hasn’t made one since May. Therefore, initiating a bullish position at these levels is a valid long-term thesis. Shorting it right here is wrong from fundamental and technical reason.
However, there is extrinsic risk of hiccups from a market-wide correction. That would foil the bottoming process.
Management just reported earnings and Wall Street did not hear what it wanted. They threw a fit even though the news was good. Hyliion committed to taking its hyper truck on roadshows this year. That is a tangible milestone that should have sparked upside moves. I guess investors are taking the “don’t fight the tape” meme literally. They are shy about trusting even good news.
That’s where using options makes sense. Instead of buying shares outright, I’d prefer selling puts lower to build a moat. I would then have no out-of-pocket expense and HYLN would have room to fall without equity losses.
My worst case would be to maybe own shares much lower and collecting credits for it. The downside of such a strategy is the finite upside profit potential. Then again this is is a Band-Aid solution to an uncertain season.
Patience Is the Key
Source: Charts by TradingView
Patient investors can sit on their shares as long as it takes. My bullish message today applies only to initiating new positions, not add to existing ones.
A lot still is riding on future successes not a healthy thriving business already.
Onus is on management to deliver on their promises. Albeit it is highly unlikely they fail, that risk exists however small it is. To err on safety, I would consider HYLN a speculative stock. Therefore, I should allocate an appropriate amount of risk and stick to it.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.
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