XL Fleet: Buying $1 Bills For 56 Cents

The Black Sheep profile picture
The Black Sheep


  • XL Fleet is a descendant of the post-SPAC boom and bust in the hybrid electric vehicle space.
  • While the company has yet to produce significant revenues/cash flows, the company has a strong cash position on its balance sheet with little to no debt.
  • Given XL Fleet is trading at a share price of $1.41 and has $2.49 of cash per share, the steep discount is something investors can take advantage of.
  • If XL Fleet was to theoretically be acquired for its net cash position (Cash-Total Debt), it would boast a fair share price of $2.45, representing a 73.7% upside opportunity.

E-mobility, Electric vehicle with battery

Thomas-Soellner/iStock via Getty Images

Investment Thesis

Given where XL Fleet (XL) is currently trading, investors are buying $1.00 bills for 56 Cents. XL Fleet has net cash of $347.08M, and after dividing by total shares outstanding, has net cash per share of $2.45. The stock is currently trading at a share price of $1.41, a steep discount to this net cash per share value. Additionally, the company has a small debt load of $4.60M. While the company has struggled to generate strong revenues and is free cash flow negative, its balance sheet supports a valuation that is much higher than the one Mr. Market is giving it. Therefore, I advocate investors get interested at current levels to acquire net cash of $2.45 at a price of $1.41. Comparably, this would be the same as buying $1.00 bills for 56 cents.

About XL Fleet

XL Fleet is a provider of fleet electrification solutions for commercial use. The company has powered 181 million miles of hybrid EV travel for its 245 fleet customers over the course of its life. In other words, the company provides hybrid engines and charging infrastructure to companies that want to transform their typical ICE (internal combustion engine) fleets with a more environmentally sustainable solution. Some of XL Fleet's customers include Coca-Cola and PepsiCo. Like many other companies that went public during the 2021 SPAC boom, XL Fleet gained a strong investor base that has diminished since.

Data by YCharts

As you can see, the stock is down 95% from all-time highs. I argue that the company has gone too far, too fast, and my theory is supported by the company trading at a steep discount to its net cash position.

Trading At A Steep Discount To Net Cash Balance

Currently, XL Fleet is trading ~44% below its net cash balance. The company's market cap sits at ~$200M and has net cash of $347.08M. If, theoretically, the company sold its business at its current net cash balance, the stock would jump 73.7%, to a fair share price of $2.45.

Seeking Alpha's valuation grade of "A" supports my vision that shares are currently extremely undervalued as shown below.

Seeking Alpha Valuation Grade

Seeking Alpha Valuation Grade (Seeking Alpha)

As the table suggests, the company is trading at .55x its book value, and its book value is nearly entirely cash (89.4% of total assets) with little PP&E, receivables, goodwill, and inventory. Below you can find a summary of some of XL Fleet's important balance sheet metrics to understand the true discrepancy between its current valuation and fair value.

XL Fleet Balance Sheet Metrics

XL Fleet Balance Sheet Metrics (Seeking Alpha Financials)

Notably, the company's current ratio is 22.52, and quick ratio is nearly the same at 21.53x. Generally, a strong current ratio is anything above 1.0. XL Fleet's is 22.5x that benchmark. Essentially, the company is swimming cash, with total cash at $351.68M and very little debt at $4.60M. Its book value per share is $2.50, and with nearly all of those assets being cash (89.4%), is trading at a steep discount ($1.41 per share currently).

Key Risks To Valuation

The main risk to XL Fleet's valuation is a lack of financial management. The company is working on this aspect, however, recently naming Donald Klein as its new finance chief. Additionally, XL has showed little growth Y/Y as shown in the revenue chart below.

Data by YCharts

On A Y/Y basis, revenues are down 27.65%. The future seems brighter, however, as analysts anticipate revenues to be up $40.20M (>70%) over the next 12 months.

Data by YCharts

What investors seem to be missing, and why I am so bullish, is the company's balance sheet which remains extremely strong. Typically, I like to find companies that are free cash flow generative, have strong tailwinds for growth and are in strong financial standing, but the outsized cash position on XL's balance sheet makes this valuation unique.

On a TTM basis, XL Fleet has had a negative cash flow of $31.3M. If the company continued to burn cash at this rate, it would take 4.76 years for its cash balance to reach the current market cap and market valuation. This ~5-year time buffer gives investors in XL Fleet ample time for the company to either a) be acquired or b) improve operations until its cash balance is justified by the current market valuation.

Given the recent shift in advocating for companies to meet ESG standards, I believe XL Fleet's runway for growth is strong. Additionally, if the company is not acquired despite its cheap valuation right now, the outlook for the HEV industry remains strong and my anticipation is that XL Fleet will grow with it.

Comparing Current Ratio Of XL Fleet To Other EV SPACS

Outlined below are some of the other EV SPACS that came to market in the heat of the 2021 boom with their accompanied current ratios.

Data by YCharts

As you can see, XL Fleet is levels ahead of its peers, trading at a current ratio of 22.52x. Almost all of the current assets in this equation are cash, which only elevates the validity of this chart and my valuation rationale.

Final Thoughts

While XL Fleet is a fallen angel of the 2021 SPAC boom, I argue that its share price has come down too far too fast, and is cheap given it has undershot its net cash balance by a large margin. I advocate investors get interested at current levels, as the large discrepancy between the company's cash balance and current market cap is at extremes. I assign a "strong buy" with a fair share price of $2.45, representing a 73.7% upside opportunity.

This article was written by

The Black Sheep profile picture
B.A. Economics, 22 years old, avid investor. Extensive experience in valuation and financial modeling. Previously conducted single stock research for a fund manager with >$170M of single stock holdings, often employing contrarian strategies to increase returns. Picks (equal-weighted) have outperformed the S&P 500 by 1.48% YTD (as of 5/9/22).

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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