Workhorse’s Valuation Has Gotten Ahead of Itself

There’s a popular saying that if you throw enough stuff at the wall, eventually something will stick. That’s apparently investors’ approach to investing in electric vehicles, and Workhorse (NASDAQ:WKHS) is one such attempt to find a profitable EV name. It’s not that WKHS stock is a complete write-off – the company has some promising things in the works. But investors are overly excited about a company whose growth story depends heavily on speculation and it’s hard to justify at current levels.

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

WKHS stock is up roughly 80% since the start of June. Most of that increase is based on hypothetical scenarios and promises from management, something I’d be hesitant to bet on now considering the stock’s meteoric rise.

Many are worried that electric vehicle stocks have entered bubble territory. (I’m one of them, by the way.) And if that’s the case then Workhorse stock will be one of the first to crash and burn.

The Case for WKHS Stock

To be clear, I’m not suggesting that Workhorse is a terrible company. The firm’s approach to the EV space is commendable because it’s joining two high-growth areas – delivery and electric cars.

Workhorse specializes in electric delivery vans, which, as InvestorPlace’s Luke Lango pointed out, is a space that could offer explosive growth. EV delivery vehicles are not only cleaner, but they’re also 65% cheaper to operate. 

Plus, WKHS vans are the only of their kind to be licensed for sale across the entire U.S., and big-names like UPS and USPS have already put in orders for the vans.

With all of that in mind, WKHS stock sounds like a good bet.

Why Workhorse Has Outrun its Valuation

The trouble with WKHS that even the loftiest expectations are already baked into its share price. The stock is due a correction, and when that happens it will offer EV enthusiasts a better entry point.

WKHS’s $1.6 billion market cap isn’t backed up by anything in terms of financials. The firm produced revenue of less than $100,000 last year, and this year isn’t looking much better.

Lango argues that investors must be forward-thinking, which is a valid point. But the assumptions are very lofty considering the uncertainty ahead.

Between now and 2025, Lango is expecting delivery fleets to increase their clean vehicles by 27 percentage points. While that may have been the case in December, I see that as very unlikely now that the novel coronavirus is in the picture. Companies going to delay new outlays for as long as possible, which makes the case for switching to electric right away weaker. 

Not only that, but some of Workhorse’s big deals may not be quite as lucrative as they initially seemed. One, in particular, is the firm’s partnership with the USPS. As Alex Sirois pointed out, Workhorse’s contract with the postal service could be “one of, if not the most important driver of Workhorse’s near-term progress.”

Tthe $6 billion contract would be a boon to WKHS stock – but that’s a huge what-if scenario.

Even if Workhorse is able to win the majority of the contract, that doesn’t automatically translate into profits. The battery for Workhorse vehicles alone costs the firm $30,000. Speculation around the deal suggests WKHS will need to offer its vans for somewhere between $30,000 and $40,000 to win the contract. At best, the firm would break even, but more reasonably it would likely have negative margins.

The Bottom Line on WKHS

There are many benefits to be had from a major contract win like that with the USPS. Not only would it give Workhorse some credibility, but it would give the firm a chance to showcase its vehicles, which could lead to more customers.

But from a shareholders’ perspective, the risk is far greater than the potential return right now.

I’d wait on the sidelines for a pullback before considering WRKHS stock a buy. 

On the date of publication, Laura Hoy did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Laura Hoy has a finance degree from Duquesne University and has been writing about financial markets for the past eight years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.

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