It’s a sign of the times… it tells you where the market is and where it’s headed.
Finally… legacy companies have realized that the market wants more investment opportunities in the next-generation clean technologies.
In a moment, we will give you two examples of the “old economy” admitting defeat.
They suggest to us that the time to pay very close attention to any technology or company having to do with the “green revolution” is now.
First…
Harley-Davidson Is Done
It’s sad to see an iconic company like Harley-Davidson fade into oblivion.
But the world doesn’t want gas-hungry motorcycles anymore.
The proof is in the numbers.
The company’s revenue peaked at about $6.2 billion in 2014. Five years after that, before Covid, its annual sales were 14% lower.
Over the 12 months ended in September 2021, they are down 19% from the 2014 peak.
Its net income collapsed by more than one-third over the same time period.
In other words, Harley-Davidson is in decline…
Except for one product line…
Its electric motorcycle division, LiveWire, has been booming. Harley-Davidson itself projects that its sales could reach $1.8 billion in 2026.
This is why Harley-Davidson is spinning off LiveWire.
In simple terms, the market doesn’t put too much value on legacy vehicle manufacturers anymore.
Harley’s enterprise value-to-revenue multiple (or EV/revenue), which is a popular valuation metric, is about 2.4x.
Tesla’s is over nine times higher, at 22.1x.
What does it mean? It means that investors are willing to pay much more for Tesla’s shares than they are for Harley’s per dollar of revenue.
These multiples are how the market expresses its demand for shares. And clearly, the EV market is in vogue while the “legacy” one is in decline.
This is why LiveWire is merging with a SPAC (special purpose acquisition vehicle) and going public. This separation from the parent company is the only way for the young EV division to get market attention and excitement.
Elevating an “Old Economy” Company through Green Hydrogen
Thyssenkrupp is one of the world’s leading industrial conglomerates… it’s a 99-year-old German company that’s famous for its elevators. It has multiple business lines, including steel manufacturing.
In other words, things that investors don’t care about in 2022.
But it has a hidden gem… and it has something to do with the “green transition,” much like Harley’s LiveWire unit.
This German giant’s subsidiary, called Uhde Chlorine Solutions, produces water electrolyzers.
They are essential for making hydrogen using renewable energy sources. In other words, “green hydrogen.”
Uhde is a “picks and shovels” company that could potentially have a place in the new sustainable economy.
And unlike its storied parent, Uhde is getting a lot of attention from the market.
As a result, Thyssenkrupp wants to float this “little gem” for about $6.9 billion (or 6 billion euro).
Critically, this story tells you that the “green revolution” isn’t only about market multiples. Being part of it can be a fundamentally good business.
Uhde has an order backlog of about $1 billion already. So, the valuation doesn’t seem outrageous.
And The Financial Star noticed this trend early on. In March 2021, we wrote about green hydrogen and said:
Hydrogen fuel cells can solve two massive problems facing the world.
First, they can supply the world’s transportation industry with a reliable source of clean power. From taxis to cargo ships the size of a village, hydrogen can move people and goods.
Second, hydrogen fuel cells can help lithium-ion batteries in the global clean energy transition. They will work alongside solar and wind generators to store energy and release it into the grid when needed.
And money is pouring into this sector… both governments and investors are looking out for opportunities in the green energy and transportation space.
We have more confirmation of this trend now. Stagnant conglomerates are racing to float their clean-energy divisions to make sure that these smaller companies get the best valuations.
The “New Economy” Is Here, Now
What we’re looking at right now is a massive turnaround in the global economy… and the stock market.
Small companies and divisions of their larger counterparts get valuations above and beyond their “old economy” parents.
You could remember that Tesla is one of the world’s most valued auto manufacturers right now.
Just recently, its market capitalization was equal to those of the next ten automakers by size.
This story is repeated in other sectors…
Small-cap companies and divisions of larger conglomerates are in the spotlight.
The two deals we talked about above are proof that there’s no going back to the way things were five or ten years ago.
From electric vehicles to green hydrogen and nuclear power and beyond, the “new economy” is here.
And it’s your choice to either ignore this trend or take part… potentially, with a massive payoff.
Thank you for your loyal readership,
The Financial Star team
