TuSimple Holdings (TSP) boasts a disruptive, self-driving trucking platform, and significant growth potential. However, it is also richly priced and is nowhere near profitability, making it a very speculative investment. I am neutral on the stock.
TuSimple’s self-driving technology is specifically designed to meet the unique demands of heavy duty trucks. Through its industry-leading autonomous driving system, and purpose-built autonomous trucks with original equipment manufacturers (OEMs) Navistar (NYSE:NAV) and TRATON, it has become a partner of choice for shippers who want their cargo delivered safely.
Leading the way in autonomous freight, TuSimple is revolutionizing how goods are delivered. TuSimple is redefining global transportation by connecting shippers with carriers, for an efficient supply-chain process that benefits everyone involved. (See TSP stock charts on TipRanks)
TuSimple's Strengths
TuSimple’s semi-trucks have an edge over competitors because they have a powerful AI framework that can handle truck-specific problems (like lane management for long-haul travel, or how to keep the engine at its most while driving downhill to save gas). As the industry increasingly transitions towards AI-powered vehicles, TuSimple’s competitive advantages should result in rapid growth in market share, revenues, and profits.
Recent Results
In Q2, TuSimple made significant progress in building its team while expanding its freight network – all while growing revenue by 463% year-over-year.
Its fleet of 70 semi-trucks drove 900,000 miles in Q2, giving a total of 1.7 million miles driven in Fiscal Year 2021. The more miles driven by TuSimple trucks, more the company's AI improves, given the increased data points.
Valuation
While TuSimple has a very strong technological competitive advantage, thanks to its AI-powered trucking platform that should drive strong growth in the years to come, it has a ways to go to grow into its valuation.
TSP trades at a whopping 371x forward revenues, and is a long way from generating profits. On the bright side, it is expected to generate incredible growth in the near term, with 250% revenue growth in FY 2021 and 447% revenue growth in FY 2022.
Wall Street’s Take
From Wall Street analysts, TuSimple earns a Strong Buy consensus rating, based on eight Buy ratings in the past three months. Additionally, the average TSP price target of $64.71 puts the upside potential at 39.6%.
Summary and Conclusions
TuSimple certainly offers a compelling investment thesis, given its disrupting self-driving technology. Furthermore, Wall Street analysts are unanimously bullish on the stock, and their consensus price target gives it significant upside.
However, investors should keep in mind that the company is a long way from profitability, and could face stiff competition in the space. Furthermore, the timeframe for transition towards autonomous trucking is uncertain as it largely depends on regulators, as well as trucking companies, being willing to make the switch.
As a result, investors might be prudent to view this as a highly speculative stock.
Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.
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