My InvestorPlace colleague, Muslim Farooque, recently argued that Workhorse Group (NASDAQ:WKHS) needed to find a path to profitability before investors should get excited about WKHS stock.
I agree with Muslim’s rationale 100%. You absolutely shouldn’t touch this stock if profits and revenues are your things. It’s got speculative investment written all over it.
“There’s no denying Workhorse Group’s potential, but it’s just not an investable business at this stage,” Farooque wrote on Aug. 28.
“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.”
I don’t think there’s any question investors are hoping to catch a ride on the next Tesla (NASDAQ:TSLA). Why else would Workhorse have an enterprise value of $1.8 billion from $180,000 in trailing 12-month sales?
At this moment, Workhorse is a long way from being the next Tesla. However, that doesn’t mean speculative investors, who understand the risks associated with Workhorse, shouldn’t consider making a small play on it.
Here’s why I feel this way.
Workhorse Delivers Product
The company came pretty darn close in early July, hitting a 52-week high of $22.90. It’s since lost its momentum, trading around $16.39 as I write this. Second-quarter sales, or lack thereof, didn’t help. Analysts were expecting $270,000 in sales; Workhorse delivered $91,940. As for profits, the company lost $7 million from operations, up from a $4.1 million loss a year earlier.
Again, if you’re having a hard time wrapping your head around the company’s lack of revenues and profits, this is not the stock for you. The company’s most compelling argument is that it has two products currently in its stable that businesses will be interested in purchasing — the C-series electric step van and the HorseFly drone — it just needs to keep focusing on executing its plan.
On the electric step van front, it announced during its Q2 2020 press release the delivery of three C-series electric step vans to Ryder (NYSE:R). It also reaffirmed its target of delivering at least 300 vehicles in 2020, perhaps as many as 400.
“In the first half of this year we accomplished a series of major operational and EV industry milestones, culminating in the first official deliveries of our C-Series trucks to Ryder just a few weeks ago,” said Workhorse CEO Duane Hughes.
“Additionally, after acquiring the requisite various state and federal approvals in recent months, we are now the only medium duty BEV OEM permitted and able to sell and deliver our vehicles in all 50 states, which should allow us to further distance ourselves as the first movers in the last-mile EV space.”
In July, Workhorse announced that it got a purchase order for 20 C-1000 electric step vans from Cincinnati-based eTrucks. The trucking company plans to provide these vehicles to small- and medium-sized, Ohio-based fleet operators.
Like the delivery of vehicles to Ryder, the purchase order represents a tangible sale, rather than merely an intent to order vehicles. Purchase orders mean money, which means sales, and that cash flow will be useful as it continues executing its plan.
WKHS Stock Hits $26
In early August, I stated that I thought WKHS stock could hit BTIG analyst Gregory Lewis’ $26 target price over the next 12 months. A big part of my belief had to do with its efforts to secure a piece of the U.S. Postal Service’s $6 billion contract to provide next-generation mail trucks.
Who knows if it happens, but given it’s got a growing backlog of potential orders, including 1,100 from UPS (NYSE:UPS) and DHL, the risk-to-reward for investors is slowly moving in its favor.
In my August article, I even suggested somewhat facetiously, that Tesla should buy Workhorse as part of its plan to dominate commercial trucking. While it sounds far-fetched, it’s another reason why aggressive investors shouldn’t be afraid of making a small wager.
Things are happening on the electric vehicle front and even though Workhorse appears to be a long way from profitability, I can think of plenty of other money-losing businesses people are plowing their hard-earned capital into that don’t have nearly as much potential.
If profits are your thing, Workhorse is not your kind of stock. I happen to believe it’s an excellent speculative buy for aggressive investors. Profits be damned.
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. On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
