As an investment writer, I’ve beaten up on my share of unprofitable companies that somehow enjoy robust stock runs. My favorite whipping boy for years was Tesla (NASDAQ:TSLA), which somehow continued to climb and climb and climb some more, though profitable quarters were as rare as Martian spacecraft sightings. Now comes another electric vehicle company, Workhorse Group (NASDAQ:WKHS). And like Tesla shares, WKHS stock has enjoyed a way-huge rally underpinned by—yup—zero profit.
The big action commenced sometime around June 3, when you could get a share of WKHS for $2.95 per share. Then in a month, the share price shot up to an all-time high of $20.91, an increase of more than 600%. Man, oh man and here’s what happened: At the end of June, Workhorse scored $70 million in financing cryptically referred to as “a single institutional investor” by the company.
Noting cryptic, however, happened so far as Robinhood investors are concerned. Business Insider reported that in June (which should be dubbed the Month of the Workhorse), the number of Robinhood account owners who invested in Workhorse leaped more than 400% to 116,000.
And yet, is that wise? By the numbers no, but by recent precedent and sector formation, perhaps.
The Up-Down Gyrations of WKHS Stock
If we examine the period prior to the most recent jump, WKHS stock has an interesting history marked by two periods: a steady monster climb and a stomach-dropping dip. Between its 2014 debut and April 2016, its value multiplied by 10 times. Then after hitting a record high of $11.10, it shed 80% value and remained in $2 territory for the next three years. And for a time, it got worse—much worse—when the stock dipped as low as 51 cents per share in December 2018.
Mr. Hindsight being the market genius he is, hail to those who bought back then: You’ve made more than 37 times your original investment. And no matter when you bought in the stock’s history, you’re in the green. So now comes the crystal-ball-gazing part. Will WKHS continue to rocket up? Or if you buy at this point, will you be doing exactly what investors shouldn’t do, and purchasing at peak? And we might repeat, staking your money on a company that has yet to turn a profit?
I’m going to go a step further onto a limb in my analysis than fellow InvestorPlace writers Muslim Farooque and Will Ashworth. They both gave smart takes on WKHS stock and I encourage you to read their recent pieces. Farooque called Workhorse “a vulnerable investment, with an unclear path to profitability, ineffective intellectual properties and weak financials,” while Ashworth contended: “You absolutely shouldn’t touch this stock if profits and revenues are your things.”
A World Where Things Will Go Electric
Yes, but any wager on WKHS stock is a wager on the electric vehicle sector itself. And unlike ride-hailing companies Lyft (NASDAQ:LYFT) and Uber (NYSE:UBER)—who are under constant assault for alleged unfair labor practices and have an easy-to-copy business model—electric vehicle companies are different. Their products can only grow in popularity and demand in the face of climate change and you can’t exactly build a manufacturing plant overnight.
Workhorse is also carving out a nice niche for itself, making commercial vehicles such as C-series electric step vans. Ryder System (NYSE:R) recently bought three, and if the company falls in love with them, it could mean a bonanza for WHKS shareholders, as Ryder currently owns and leases 213,800 vehicles.
And in that sense, unprofitability takes on different perspective, even if it can’t be outright ignored. Clearly, electric cars and delivery vehicles are as much on their way in as energy sector stocks are on the wane, and possibly on their way out.
No Profit but Signs Point Forward
Profit track record? Yeah, there’s none. And just because a sector is new and exciting doesn’t mean it’s ready for Wall Street prime time; once again, Lyft and Uber immediately come to mind. Sexy looking? Check. The future of transport? Probably in some form. But worth your investment dollars? Sure, if you like to burn them.
Then there’s Workhorse, which just reaffirmed previous production and delivery targets of 300 to 400 vehicles in 2020 in its Q2 report. Sales, though paltry at $92,000, are still up close to 17 times year-over-year. Meanwhile, Oppenheimer analyst Colin Rusch has just named WKHS a “buy.”
“He calls the company a leader in last-mile delivery solutions and [has] established a new $23 price target for shares,” according to Barron’s.
WKHS stock is way overvalued, of that there’s no question. But this may be one of the better bets you’ll make in 2020, so long as you watch your money closely, pay attention to the news…and ask Tesla investors what it’s like to develop nerves of steel.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.