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small-cap

Speculative Bets on These US-Listed Small-Cap Stocks – HYLN, CCHWF, AZRE

Dec 14, 2021 | Team Kalkine
Speculative Bets on These US-Listed Small-Cap Stocks – HYLN, CCHWF, AZRE

Hyliion Holdings Corp.

HYLN Details

Hyliion Holdings Corp. (NYSE: HYLN) is a designer, developer, and marketer of electrified powertrain solutions to reduce carbon intensity and greenhouse gas (GHG) emissions of Class 8 commercial trucks. The company uses its advanced software algorithms and data analytics capabilities, enabling fleets to decrease their fuel and operating expenses and integrate seamlessly with their existing fleet operations. With its electric hybrid system in testing and the Hypertruck ERX system in the prototype phase, the company is at the pre-commercialization stage of development.

Latest News:

  • Key Appointment: On October 14, 2021, HYLN appointed Mr Shiva Duraiswamy as Vice President of Engineering. He will lead technical teams at HYLN focusing on powertrain and battery innovation initiatives and control and software system implementation.

Q3FY21 Results:

  • Surge in Loss from Operations: The core business operations of HYLN have yet to generate revenue. It reported an expansion in loss from operations to USD 26.81 million during Q3FY21 (ended September 30, 2021) compared to USD 5.05 million during Q3FY20 due to an increase in research & development (R&D) and selling, general and administrative (SG&A) expenses.
  • Expansion of Net Loss: HYLN reported an increase in net losses to USD 26.62 million during Q3FY21 vs. USD 9.10 million during Q3FY20.
  • Cash and Debt Position: As of September 30, 2021, the company had cash & cash equivalents (including short-term investments) of USD 433.95 million and no outstanding debt.

Key Risks:

  • Supplier Concentration Risk: HYLN's electric powertrain solutions rely on highly sophisticated and complicated software and hardware developed and maintained in-house or by third parties. These software and hardware may have flaws, faults, or vulnerabilities that, if not discovered promptly, could harm the company's reputation, lead to customer loss, and impact its business.

Outlook:

  • Revenue Guidance: HYLN stated on November 09, 2021, that it expects to begin deliveries of its Hybrid eX in Q4FY21.
  • Operating Expense Guidance: It also expects its operational expenditures, including R&D and SG&A expenses, to be in the range of USD 110 - 120 million for FY21.

HYLN Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

HYLN's share price has declined 58.67% in the past nine months and is currently leaning towards the lower-band of its 52-week range of USD 5.63 to USD 22.25. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 33.80.

Considering the significant correction in the stock price, debt-free status, anticipated revenue generation in FY21, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 6.085, down 2.48% as of December 13, 2021, 12:52 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

 

Columbia Care Inc.

CCHWF Details

Columbia Care Inc. (OTC: CCHWF) is a medical cannabis producer, manufacturer, and supplier with licenses in over 18 US and European Union states (EU). The CCHWF has 130 locations, including 99 dispensaries and 31 cultivation and production centers. Some of the most well-known brands include Seed & Strain, Triple Seven, gLeaf, Plant Sugar, and Platinum Label CBD. In addition, the company's new retail brand, Cannabist, emerged in FY21, developing a national dispensary network based on unique technology solutions.

Latest News:

  • Transform Florida Footprint: CCHWF stated on December 08, 2021, that it had completed the rebranding of its retail footprint across Florida to the new Cannabist retail design. CCHWF extended its product offerings in the Florida market throughout 2021, giving patients access to more than 100 products. The company has more than 100,000 square feet of operational cultivation and manufacturing capacity, including more than 38,000 square feet of greenhouse space in Alachua that completed its first harvest in June and the 14 Cannabist stores throughout Florida.
  • Acquisition of Medicine Man: CCHWF announced the completion of its acquisition of Medicine Man, a vertically integrated Colorado-based cannabis company, on November 01, 2021. The total upfront payment was USD 42.0 million, consisting of USD 8.4 million in cash and USD 33.6 million in shares, with the possibility of a bonus payment based on performance in 2021. Adjusted EBITDA and cash flow from operations are immediately accretive due to the transaction.

9MFY21 Results:

  • Growth in Revenues: The company reported an increase of 210.14% in its revenues to USD 320.80 million during 9MFY21 (ended September 30, 2021) from USD 103.44 million during 9MFY20, primarily driven by recent acquisitions, expansion of dispensary network and additional sales through its existing dispensaries.
  • Increase in Losses: CCHWF witnessed an increase in losses to USD 61.76 million during 9MFY21 vs. USD 55.10 million during 9MFY20.
  • Leveraged Balance Sheet: CCHWF exited the quarter with a cash balance of USD 116.93 million and a total debt (including lease liabilities) of USD 391.68 million.

Key Risks:

  • Regulatory Risk: The legality of the cannabis industry determines the success of CCHWF's business plan. The political climate around the cannabis industry is chaotic, and the regulatory framework is constantly shifting. As a result, if the federal government begins to enforce federal cannabis laws in states where the sale and use of cannabis are currently legal, or if existing applicable state laws are repealed or limited, the company's business could be severely hurt in the long run.

Outlook:

  • FY21 Estimates: In its Q3FY21 presentation, CCHWF expects its FY21 revenues to be in the range of USD 470-485 million, with a gross margin to be around 46%. It further anticipates FY21 adjusted EBITDA to be approximately USD 85-95 million.

 

FY21 Guidance (Source: Investor Presentation, November 2021)

 

Valuation Methodology: Price/Sales Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CCHWF Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

CCHWF's stock price has fallen 55.04% in the past nine months and is currently leaning towards the lower band of the 52-week range of USD 2.79 to USD 7.89. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 43.50. We have valued the stock using the Price/Sales-based relative valuation method and arrived at a target price of USD 3.60.

Considering the company's growth prospects, improvement in financials, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 2.90, down 7.05% as of December 13, 2021, 1:27 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

 

Azure Power Global Limited

AZRE Details

Azure Power Global Limited (NYSE: AZRE) is a leading independent renewable power producer operating in India. It develops, constructs and operates utility-scale renewable projects and manages the entire development and operation process using its in-house engineering, procurement and construction expertise and capability. As of December 13, 2021, the company's market capitalization stood at USD 876.82 million.

Latest News:

  • PPAs for 600 MW Projects with SECI: On November 17, 2021, AZRE signed Power Purchase Agreements (PPAs) with Solar Energy Corporation of India (SECI) for 600 MW ISTS connected solar power projects under its 4 GW manufacturing linked projects. To be constructed in Rajasthan, India, these projects will supply power for 25 years at a fixed tariff of INR 2.54 (USD 0.034) per kWh. The projects are expected to be commissioned in Q3FY24.
  • Award of a 150 MW Hybrid Power Project: On November 11, 2021, the company received a letter of award (LOA) for its 150 MW ISTS connected wind-solar hybrid power project with SECI. The project includes setting up 100 MW solar and 50 MW wind capacity within 18 months of signing the Power Purchase Agreement (PPA).

Q2FY22 Results:

  • Surge in Revenue: The company reported a 25.17% increase in operating revenues to INR 4.39 billion (USD 59.1 million) in Q2FY22 (ended September 30, 2021) compared to INR 3.50 billion in Q2FY21, resulting from an increase in sales of carbon credits.
  • Reduction in Net Loss: Its Q2FY22 net loss amounted to INR 300 million (USD 4.0 million) vs. INR 368 million reported in Q2FY21.
  • Leveraged Balance Sheet: AZRE exited the quarter with a cash balance of INR 9.51 billion (USD 128.3 million) and total debt of INR 115.31 billion (USD 1.55 billion).

Key Risks:

  • Regulatory Scrutiny: The company operates in the heavily regulated power generation business in India, which require AZRE to obtain and maintain various approvals, licenses, registrations and permits for developing and managing power projects. If the company fails to receive any such license, its operations may be adversely affected.
  • Extensive Debt: AZRE has a substantial outstanding debt as of September 30, 2021, most of which are for financing projects and secured by project assets. This debt could impact the company's operations by reducing the availability of cash for working capital, capex and other expenses, increasing the cost of obtaining additional financing, etc.

Outlook:

Q3FY22 and FY22 Guidance (Source: Q2FY22 Earnings Presentation, December 13, 2021)

 

Valuation Methodology: EV/Sales per share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

AZRE Daily Technical Chart (Source: REFINITIV)

Stock Recommendation

AZRE's stock price fell 42.50% in the past twelve months and is currently leaning towards the lower band of its 52-week range of USD 17.28 to USD 53.60. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 41.29. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 22.56.

Considering the significant correction in the stock price, robust project pipeline, positive outlook, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 19.10, up 5.00% as of December 13, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.