Workhorse Group (NASDAQ:WKHS) stock has become a hot commodity. Anything involving the electrification of vehicles is moving higher. A recent upgrade from BTIG analyst Gregory Lewis suggests WKHS stock has the potential for 63% gains over the next 12 months.
Should you jump on the bandwagon? Let’s have a look at both sides of the argument.
The Argument For WKHS Stock
Lewis not only has a $26 price target for WKHS stock, but he’s also got a strong buy rating on the maker of the Workhorse C1000 and C650 electric last-mile delivery vehicles. Part of Lewis’s optimism had to do with the company getting part of the U.S. Postal Service’s $6 billion contract for next-generation mail trucks.
Although the USPS is suffering from financial hardship, the vehicles it has now are between 26 and 33 years of age. They’re so outdated, some of them are starting to catch fire. Not to mention, they’re timely and expensive to repair.
The Postal Service originally asked four companies, including Workhorse, to provide contract proposals by March 27. That deadline, due to the novel coronavirus and Covid-19, was pushed back to July 14. The contract could require the production of as many as 180,000 new trucks.
It would be a big feather in Workhorse’s cap if it could snag a chunk of this production. And that’s important because Rivian already has an order from Amazon (NASDAQ:AMZN) to purchase 100,000 electric trucks with the first 10,000 hitting the streets in 2022.
The other three companies in the running, including Karsan, a Turkish manufacturer of commercial electric vehicles, and Mahindra Automotive North America, who have a gasoline and hybrid option. The final competitor is Ford (NYSE:F), which is partnering with Oshkosh (NYSE:OSK) to provide a gas-powered truck.
The competitors are an impressive bunch, so it all comes down to whether the Postal Service wants to be innovative in its thinking or will it follow a more conventional path, which is how it got into such a sorry state in the first place. I guess we’ll see later this year.
In the meantime, as InvestorPlace’s Chris Tyler recently stated, Workhorse is on plan to build between 300 and 400 vehicles in 2020, with more than 1,100 on order from UPS (NYSE:UPS) and DHL.
Also, Workhorse has a couple of other irons in the fire – HorseFly delivery drone and partnership with Lordstown Motors – that should keep it busy for the next 12 to 24 months.
In late June, Workhorse secured $70 million in institutional funding, which will be used for working capital and general corporate purposes. With 2020 revenues not expected to be very high – $84,300 in the first quarter – the financing will come in handy as it keeps pushing forward with its plans for commercial electric vehicles.
WKHS stock is a very attractive speculative buy. I say speculative only because its revenues are still small. However, there is no doubt, a last-mile delivery vehicle that’s efficient and clean is much needed in today’s e-commerce world.
The Argument Against Workhorse Stock
InvestorPlace’s Larry Ramer believes that Workhorse stock is expensive at current prices, given the challenges it faces. He points to the large amount of electricity needed for battery-powered electric trucks, as well as the size and efficiency of those batteries compared to fuel cell-powered hydrogen trucks.
Ramer makes some good points.
If hydrogen-powered trucks can go much further on a single charge relative to battery-electric vehicles, and the time it takes to refuel the vehicle is considerably less, most businesses would lean heavily toward a fleet of the former rather than the latter.
There are several others, including Rivian and Ford (discussed earlier), who are also building their own electric commercial vehicles, so there’s no guarantee a year or two from now that sales will be much higher than they are today.
Ramer points out that Workhorse’s valuation, at a little less than 10x its forward estimated sales of $147 million, is quite expensive. That’s especially the case when compared to a company like Plug Power (NASDAQ:PLUG), that’s managed to build a substantial material-handling business while also making inroads into the commercial vehicle market.
The Bottom Line
As I said in the previous section, WKHS stock remains a speculative bet and should be treated as such. However, while I think my colleague makes several good points, the fact that Workhorse made it into the final four in the USPS contract suggests the company has got its act together.
Perhaps Tesla (NASDAQ:TSLA) should buy it before it gets too expensive. Yes, I do think the stock could hit $26 by this time next year.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
