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Workhorse Group Has Everything But Sales

One of the hottest electric vehicle stocks garnering speculative interest is Workhorse Group (NASDAQ:WKHS). And there’s a good reason for that. WKHS stock has increased over 400% in 2020. The company has two pieces of news pushing the stock in opposite directions.

A Workhorse (WKHS) W-15 hybrid electric pickup truck on display at a branding event in Flatiron Plaza in New York.
Source: rblfmr / Shutterstock.com

In early August, Workhorse delivered an underwhelming earnings report. The company delivered negative earnings per share of $1.76 on sales of $92,000. But investors in WKHS stock will find hope in the upcoming public offering of Lordstown Motors. Workforce has a 10% stake in Lordstown and will see a large influx of cash once the offering is complete.

The bullish view says to not assign too much weight to current revenue. And that’s correct. Workhorse is in an emerging market. However, the bearish view is a company should have real demand that translates into meaningful revenue and earnings. The jury is still out on that.

Commercial Electric Vehicles Are the Future

Grandview Research projects the global electric commercial vehicle market will expand at a compound annual growth rate (CAGR) of 7.1% through 2025. This was a market that was valued at $1.32 trillion three years ago.

Even as recently as a few years ago, I wouldn’t have believed that. But technology has changed. And more importantly, the infrastructure to support electric vehicles is finally developing.

Workhorse uses proprietary technologies to design, manufacture and sell or lease battery-electric vehicles and aircraft. And Workhorse already has the ability to scale its manufacturing through a 265,000 square foot plant.

However, the market that Workhorse covers, commercial delivery vehicles, is a small fraction of the electric commercial vehicle market. That’s one reason why, despite all the hype surrounding electric vehicles, Workhorse has generated less than $1 million in annual revenue each of the last two years.

The company has a small partnership with Ryder (NSYE:R) and small contracts with UPS (NYSE:UPS) and Fedex (NYSE:FDX).  This has put about 400 vehicles on the road.

Intent Doesn’t Pay the Rent

I can tell that investors are interested in electric vehicle stocks. In the last month, I’ve been asked to write about a couple of publicly traded EV companies not named Nikola (NASDAQ:NKLA) or Tesla (NASDAQ:TSLA). But as I looked at Electrameccanica Vehicles (NASDAQ:SOLO) and Ayro (NASDAQ:AYRO), I saw some promise, but companies that had a lot of work ahead of them.

And that’s because there’s a difference between purchase intent and actual purchases. Luke Lango cites a 2019 Mortenson survey that said delivery fleet owners expected their fleet to jump from 50% from today’s 23% in five years. That would be a nice boost for Workhorse, and I’m not saying it won’t happen.

But the economic outlook looks a little different in 2020 than it did last year. And the goal of many businesses for the next 12 to 18 months is to hang on. For companies like Workhorse, that means there is no guarantee that companies will do what they say they intend to do.

This brings me to another reason for investor enthusiasm; the United States Postal Service (USPS). With a fleet of old trucks (many are 20 years old) that are expensive to repair, the agency is looking to upgrade to electric trucks. That intent is all well and good, but I don’t see that happening no matter what happens in November. And if it does, I can’t imagine Workhorse would be able to make a profitable deal.

The Lordstown Offering Secures the Asset Base

In the short term, the thing that has investors really excited is the cash that Workhorse will receive from its 10% equity stake in Lordstown Motors. Lordstown is going public via a special purpose acquisition company (SPAC). Mark Hake breaks down how investors should look at this deal when calculating the stock valuation for Workhorse.

I’m not dismissing the influx of cash that the company will receive. However, I prefer that a company has actual sales. If Workhorse can’t become a profitable business, then this temporary boost in cash will amount to nothing but a sugar high.

Should You Buy WKHS Stock?

Of all the speculative EV stocks I’ve written about lately, I like Workhorse the most. And that’s because I think its addressable markets are likely to be least affected by an economy that needs to recover. In fact, it’s leaning into the e-commerce segment very well.

If it were up to me, I’d wait until I had confirmation on that USPS deal before I bought shares at the current price. But I’m not you, and if you have the risk tolerance, WKHS stock presents an interesting opportunity.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/08/buy-wkhs-stock-on-sales-not-intentions/.

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