Electric vehicle manufacturer Workhorse Group (NASDAQ:WKHS) has seen its share price skyrocket this year. Year-to-date gains for WKHS stock are at an impressive 301.7%. However, it seems that investors’ enthusiasm has worn off with an 8.5% gain this month from a 78% jump in July.
WKHS stock is a vulnerable investment, with an unclear path to profitability, ineffective intellectual properties and weak financials.
The company is ramping up production of its electric step van, the C-Series Workhorse, and is confident of meeting its targets this year. Additionally, its HouseFly delivery drone presents a massive opportunity as businesses embrace the new normal.
“We are hearing from many businesses that this transition is not a temporary one and that we need to adapt to a new normal,” said Workhorse CEO Duane Hughes.
Despite these prospects, profitability appears to be still way-off.
Worrying Second-Quarter Results
Workhorse Group recently reported lackluster second-quarter results. Loss per share widened to 12 cents per share from 10 cents per share in the prior-year period. However, results were mostly in line with consensus estimates. The company has been unable to surpass EPS estimates more than once in the past four quarters.
On the revenue front, the company missed estimates by almost 70% at $0.09 million. However, compared to the second quarter of 2019, revenue improved considerably from $5,500 to $92,000. Additionally, a significant element of its bottom-line results was an increase of 682% in its interest expenses.
Nevertheless, few highlights are pertinent for investors. Workhorse finally started production of its C-series electric step vans as part of its contract with Ryder Systems (NYSE:R). Additionally, the company has also reaffirmed delivery targets of producing 300-400 vehicles in 2020.
Cash availability is also impressive. After exercising issues stock warrants and options, the company raised $70 million in financing. As a result, the company has $105 million in its cash till, which is 338% higher than its 2019 balance.
The problems with Workhorse
The EV market is growing at a healthy pace and becoming more viable every passing year. However, when we talk about EVs, we usually leave out those produced for industrial and commercial purposes. These vehicles will have at least a 60% share of the $500 billion EV market by 2026, making WKHS stock an exciting long-term investment.
The company’s flagship product is its C-Series Workhorse, which is an all-electric step van offering 37 MPGe. Moreover, the van comes with 1,000 cubic feet of cargo space, an on-board telematics system and a modular battery pack system.
Perhaps a more exciting prospect for Workhorse is its HorseFly delivery drone. The drone is fully integrated with its electric delivery trucks and can be tracked using a custom user application. The scope for such delivery drones is immense, as a recent ResearchAndMarkets report pointed out the market will exceed $43 billion by 2024, growing at a CAGR of 20.5%.
With that being said, there a lot of problems for Workhorse, which it needs to address in realizing its potential.
For starters, it’s just not profitable. Net incomes for the past decade are in the negative, with things going from bad to worse with every year. Profitability is marred by significantly high capital expenditures and labor costs. Moreover, debt levels are still considerably high, with a debt-to-equity ratio of 1.74. Having been around since 2007, you’d expect the company to have had developed a path to profitability
Many also criticized the company on the ineffectiveness of its intellectual properties. It currently has eight patents that cover different unique competencies of the company. However, most of them have either limited value or are set to expire soon.
Final Word on WKHS stock
There’s no denying Workhorse Group’s potential, but its just not an investable business at this stage.
Having struggled for profitability for over a decade, it seems to have no clear plan for a turnaround. Though it has an exciting product pipeline, it needs to prove its mettle for investors to have a rethink.
For now, it’s best to avoid WKHS but keep tabs on its performance for the next few months.
As of this writing, Muslim Farooque did not hold a position in any of the aforementioned securities.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.