Hyzon Motors Inc. (HYZN) in Honeoye Falls, N.Y., made its market debut on July 19 through a reverse merger with Decarbonization Plus Acquisition Corporation. The company is an energy transition accelerator and technology pioneer, offering end-to-end solutions primarily for the commercial mobility sector. It focuses on the commercial vehicle market and hydrogen supply infrastructure. Its shares have gained 14.8% in price over the past month.

However, the stock has declined 30% over the past six months and 42.4% over the past nine months to close yesterday's trading session at $5.73.

While HYZN’s established technological edge, leading fuel cell performance, and history of rapid innovation are all contributing to the increasing adoption of fuel cell electric cars, an ongoing investigation related to its allegedly misleading statements about its business operations has raised investors' concerns.

Here is what could shape HYZN's performance in the near term:

Ongoing Investigation

HYZN is under investigation to determine whether certain of its officers and directors violated securities laws and breached their fiduciary duties. The complaint alleges that the defendants made materially false and misleading statements throughout the Class Period, as well as omitting disclosure of key unfavorable facts regarding the company's business, operations, and prospects. In particular, they were misrepresenting the nature of its "client" contracts and exaggerating its "deals" and "partnerships" with consumers, the complaint alleges. Furthermore, HYZN could not deliver its announced cars on schedule in 2021. This failure is said to have widely impacted its price performance, hurting shareholders' interests.

Premium Valuations

In terms of trailing-12-months Price/Book, the stock is currently trading at 3.47x, which is 30% higher than the 2.67x industry average. Also, its 30.69x forward EV/Sales multiple is 1547.8% higher than the 1.86x industry average. Moreover, HYZN's 47.64x forward Price/Sales is 3078.9% higher than the 1.50x industry average.

Unstable Financials

HYZN's net income came in at $32.35 million for the fourth quarter, ended Dec. 31, 2021, compared to a $556,000 net loss in the prior-year quarter. However, its operating expenses grew 9265.6% from the prior-year quarter to $5057 million. And its operating loss increased 9087.4% from its year-ago value to $49.61 million. In addition, the company's adjusted EBITDA loss grew 3154.9% from its year-ago value to $15.17 million.

POWR Ratings Reflect Uncertainty

HYZN has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. HYZN has a D grade for Value and Quality. The company's higher-than-industry valuations are in sync with the Value grade. In addition, HYZN's weak financials are consistent with the Quality grade.

Among the 69 stocks in the F-rated Auto & Vehicle Manufacturers industry, HYZN is ranked #56.

Beyond what I have stated above, you can view HYZN ratings for Growth, Stability, Sentiment, and Momentum here.

Bottom Line

Though HYZN's strategic growth plans helped it gain a foothold in the rapidly expanding hydrogen mobility industry, the company expects to witness operational challenges and delays in backlog conversions due to ongoing supply chain bottlenecks. Also, given an ongoing lawsuit and the company’s inadequate financials, we think the stock is best avoided now.

How Does Hyzon Motors Inc. (HYZN) Stack Up Against its Peers?

While HYZN has an overall F rating, one might want to consider its industry peers, Isuzu Motors Limited (ISUZY) and Daimler AG (DDAIF), which have an overall A (Strong Buy) rating.

HYZN shares were trading at $5.95 per share on Thursday morning, up $0.22 (+3.84%). Year-to-date, HYZN has declined -8.32%, versus a -7.06% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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