Should You Buy the Dip in XL Fleet Stock?

XL Fleet Corp. (XL) is a designer and developer of hybrid electric solutions for the commercial and municipal vehicle market in the U. S. and Canada. The company manufactures hybrid electric drive systems and data-analytic systems that measure key automotive performance indicators for both new and in-use vehicles.

With more automakers joining the EV race with their own fully electric models, the demand for XL’s solutions could decline. Also, growing pessimism among investors regarding the stock’s overvaluation could lead to further price declines.

The company’s broad portfolio of solutions and continued its expansion of new customer relationships across the country have propelled it to a  119.8% gain over the past year. However, the stock lost some ground after a massive surge on December 24. This, along with a few other negative factors, has led our proprietary ratings system to rate the stock as “Neutral.”

Here is how our proprietary POWR Ratings system evaluates XL:

Trade Grade: C

XL is currently trading higher than its 50-day and 200-day moving averages of $15.13 and $11.48, respectively, indicating that the stock is in an uptrend. In fact, the stock’s 113% return over the past three months reflects solid short-term bullishness.

XL’s revenue has increased 142.3% year-over-year to $6.30 million in the third quarter ended September 30, 2020. The revenue increase was driven by growing sales  across its product  portfolio. XL reported a gross margin of 12.1% for the third quarter of 2020, compared to a loss of 3.7% for the third quarter of 2019.

On December 22, XL announced that it had completed a merger with Pivotal Investment Corporation II. XL received approximately $350 million in cash proceeds, which it expects to use to  advance its position as a leader in fleet electrification through the development of new products.

The company entered a partnership with a commercial EVSE supplier in December to launch its XL Grid division. The division will  provide charging infrastructure, energy storage and power solutions for electrified fleets.

Buy & Hold Grade: D

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, FDX is poorly positioned. The stock is currently trading 36.9% below its 52-week high of $35.00, which it hit on December 24.

Peer Grade: D

XL is currently ranked #44 t of 67 stocks in the Auto Parts industry. Other popular stocks in this industry are AutoZone, Inc. (AZO), Cummins, Inc. (CMI) and LKQ Corporation (LKQ)

AZO, CMI, and LKQ have gained 8.8%, 37.3%, and 10%, respectively, over the past year. This compares to XL’s 119.8% returns over this period. However, the stock’s high valuation makes it riskier compared to its industry participants.

Industry Rank: A

The Auto Parts industry is ranked #10  of the 123 StockNews.com industries. The companies in this industry manufacture and sell automobile parts, including transmission and power train components, engines and engine parts, body parts and trim, electronics, braking systems, and steering and suspension components.

The auto components industry has been witnessing rising demand with a growing preference for affordable personal transportation.

Overall POWR Rating: C (Neutral)

Despite occupying a different niche than many of its peers and having several established customers, XL is rated “Neutral” due to the volatility it is experiencing, as determined by the four components of our overall POWR Rating.

Bottom Line

The recent dip in XL’s stock price does not look like a great buying opportunity. The company’s shares skyrocketed in December but pulled back soon after because many investors believe that the stock is overvalued.

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XL shares were trading at $21.62 per share on Friday afternoon, down $0.47 (-2.13%). Year-to-date, XL has declined -8.89%, versus a 1.72% rise in the benchmark S&P 500 index during the same period.

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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