Workhorse’s Performance Isn’t Keeping Up With Its Valuation

Workhorse’s (NASDAQ:WKHS) second-quarter earnings conference call was not very impressive, as the company did not disclose any strong positive catalysts. As a result, I believe that the valuation of WKHS stock is excessive at this point.

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

On the Aug. 10 conference call, Workhorse CEO Duane Hughes reported that the company had sent two vehicles to Ryder (NYSE:R). Hughes indicated that the latter company, which is a major seller and leaser of trucks, will use Workhorse’s trucks at its own service center and show them to potential buyers and renters.

While Ryder’s interest in Workhorse’s trucks is positive, the fact that Ryder only ordered two of them is definitely negative.

Also disappointing is the fact that Hughes had no meaningful news to share about UPS (NYSE:UPS). Two years ago, Workhorse partnered with UPS to design and build vans. The hope was that Workhorse vans would replace the 35,000 gasoline- and diesel-powered vehicles in UPS’s fleet, Barron’s recently reported. The shipping company ordered 1,000 of Workhorse’s trucks but has only acquired 350 of them.

Hughes had no news to shares about UPS on the company’s recent conference call. Asked about the shipping company, he said he had “nothing really” to report, adding “it’s really just a function of working directly with UPS in terms of how they’re building out their infrastructure.”

The owners of WKHS should be worried about the fact that UPS apparently only acquired 350 of the 1,000 trucks it ordered from Workhorse and does not appear interested in ordering any more at this point.

Other Good News Wasn’t That Good

Reiterating information contained in a press release that Workhorse issued last month, Hughes noted that Ohio-based eTrucks, a resellers of trucks, had ordered 20 of Workhorse’s trucks. But of course, 20 trucks is not exactly a high number of vehicles. Moreover, eTrucks does not seem to be a major company; I was not even able to find its website.

Hughes also made much of the success of one of Workhorse’s partners, electric-truck maker Lordstown Motors. Hughes noted that, in exchange for providing intellectual property to Lordstown, Workhorse had received an ownership stake of about 10% in its fellow electric-truck maker.

Hughes estimated that Lordstown would be worth $1.6 billion after going public, making Workhorse’s stake worth $160 million.

Finally, the CEO noted that Lordstown, which has received pre-orders worth $1.4 billion, had agreed to pay Workhorse a 1% royalty on the first 200,000 vehicles sold. It will also receive a 4% commission on 6000 Workhorse W-15 pre-orders that had been transferred to it.

My calculations indicate that, if all the orders become sales, Lordstown will owe Workhorse $224 million. But, in all likelihood, those sales will be spread over several years, and some of them could fall through. All in all, Lordstown is currently worth about $400 million to Workhorse. But, in all likelihood, most of that sum is not going to actually materialize any time soon.

And considering that the market capitalization of WKHS stock currently stands at $1.72 billion, $400 million is not exactly an awe-inspiring figure.

Finally, on the conference call, John Graber, the company’s head of Workhorse’s aerospace operation, discussed in great detail the advancements of its drone delivery program. But as I pointed out in my previous column, there are still significant problems that are preventing drones from being used for deliveries on a wide scale.

The Bottom Line on WKHS Stock

As I’ve pointed out in previous columns, electric trucks have significant, although limited, potential. But I think that investors should only buy the shares of electric-truck companies that have a combination of strong early demand and an attractive valuation.

Ayro (NASDAQ:AYRO) is in that category. The company appears to have a close, vibrant partnership with giant food-cart maker Gallery Carts and recently announced orders of $584,000 from it. But the market capitalization of Ayro stock is only $80 million. If and when Rivian, from whom Amazon (NASDAQ:AMZN) ordered 100,000 electric vans, goes public, it would likely be a good stock to buy.

Workhorse, however, with its high valuation and lack of exciting, recent news, is not worth buying or owning at this point.

As of this writing, the author did not own any of the aforementioned stocks.

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