Summary
- HLGN is a renewable energy technology company founded in 2013; it is headquartered in Pasadena, California ().
- In this post we provide a simulation-based (sim-based) valuation () of HLGN.
- Our results suggest the following fair values – stock price: $12.21, and price-to-earnings ratio: 85.36.
- At the time of this writing, HLGN trades at $4.77, so it appears to be undervalued, with a potential upside of 155.97%.
Heliogen (HLGN)
Heliogen, Inc., is a renewable energy technology company founded in 2013. The company is headquartered in Pasadena, California (). It has invented an artificial intelligence technology to enable solar power energy generation and storage, for which it has already been granted multiple patents (), with yet other patents pending.
Among its patented solutions are the following: HelioHeat, for the production of heat for use in industrial processes; HelioPower, a solution for power generation; and HelioFuel, a solution for hydrogen fuel production. The company has recently signed an agreement with Bloom Energy (), a multi-billion dollar company that sells fuel cell systems for on-site power generation.
Estimating a fair value for the stock
In this post we provide a simulation-based (sim-based) valuation () of HLGN.
Since the company has only recently become public, we assumed an expected growth in earnings for the next 5 years of 50%, which is what we used for the sim-based earnings growth rate. While this may seem like a lot, it is conservatively based on Bloom Energy’s recent sequential quarterly sales growth rate of 65.22%. We used 30% for net profit margin in our sim-based analysis, which is typical of high-growth technology companies; and a price-to-sales ratio of 10, which is at the low end of valuations for those types of companies.
Note that we assumed a positive net profit margin for a company that actually has a negative margin; we explained the rationale for this, in the context of our sim-based analyses, earlier in this blog ().
The table below summarize our sim-based results.
Since our sim-based analysis uses a S&P 500 return as a basis, our results summarized on the table above suggest the following fair values – stock price: $12.21, and price-to-earnings ratio: 85.36. At the time of this writing, HLGN trades at $4.77, so it appears to be undervalued, with a potential upside of 155.97%. It should be stressed that this is a 10-year out valuation, which is a typical range for a variety of companies; it is not a 15-year or 20-year out valuation, which are sometimes used for high-growth firms.
Final thoughts
HLGN became public on the last day of December 2021 via a special purpose acquisition company (SPAC) offering, reached a local peak share price of $16.35 on that same day, and then tanked to a low of $3.12 in late January 2022. It has steadily been going up since then, with a very low correlation with the S&P 500. The latter (S&P 500) has been going down since late 2021.
In spite of this roller coaster ride, the company seems like an asymmetric bet at the moment, with a lot of upside potential. Arguably the valuation above is rather conservative given the many avenues for income. Some examples are: producing hydrogen at a low cost for distribution and use (to generate electricity, and power large machinery such as trucks and aircraft), building and operating onsite solar energy power plants, patent royalties, and sales of carbon credits. Just to name a few.
Disclosure
The author owns HLGN shares at the time of this writing.
