Electric vehicle stocks keep on moving up. Despite the volatile stock market overall, EV plays like Workhorse (NASDAQ:WKHS) continue to attract traders. WKHS stock has had a bumpy ride up from its $3 lows to something around $25 today.
EV stocks are enjoying tailwinds as the sector as a whole has surged. You get the sense that electric vehicles are on the tipping point toward becoming a mass market product, and that would surely make investors in the right EV stocks a small fortune.
So is Workhorse one of those EV stocks that is set to deliver? Alas, probably not.
Oddly enough, however, Workhorse was directly involved in the creation of one of the more compelling EV stocks. That one, Lordstown, is probably the one you want to own though, not the original Workhorse. Here’s why.
Buying Lordstown Versus WKHS Stock
Earlier this year, electric pick-up truck company Lordstown agreed to merge with a special purpose acquisition company (SPAC) called DiamondPeak (NASDAQ:DPHC). The combined company will take over the old General Motors (NYSE:GM) Lordstown auto factory and start building electric vehicles there.
Here’s the interesting part. Workhorse originally arranged the Lordstown deal, and Workhorse’s long-time chief executive officer (CEO) Steve Burns will be leading operations at Lordstown.
This is all fine, Workhorse had an equity stake in Lordstown and earned a fat profit for its involvement. As of the latest filings, Workhorse retains a 10% ownership position in Lordstown, and thus has benefited as the share price there increases.
However, it’s a bit odd for a CEO to take off with a newly-formed subsidiary like this. As Burns explained, it was complicated to have Lordstown working on both delivery vehicles and pick-ups at the same time, so it was easier to split in two.
Investors can’t be blamed for wondering if Lordstown was the most promising part of Workhorse and remaining stock holders got stuck with the leftovers.
What Workhorse Is Working On
Workhorse is supposed to be commercializing last-mile delivery vehicles. A current target market is for mail and package delivery.
In the past, Workhorse has seemingly been on the verge of contracts with several parcel delivery companies, but nothing has quite worked out. Over the past ten years combined, Workhorse has brought in less than $20 million in total revenues. That’s pretty sour. However, there’s another potential deal in the making.
The current excitement with Workhorse centers around whether or not the company will secure a contract with the U.S. Postal Service. Rumors suggest that Workhorse could bring in as much as $6 billion if this contract ends up happening.
Obviously, this would be a huge deal and would make Workhorse a credible and intriguing electric vehicle play. However, at the current market capitalization of $2.6 billion, even securing this contract alone wouldn’t justify that lofty price. As our Vince Martin noted, so far, Workhorse has spent little on research and development. Nor does it have much in the way of proprietary parts or technology that would give it a sustainable edge over rivals.
Now sure, bulls can logically argue that if Workhorse gets the Postal Service contract, it will be able to use that as a springboard to secure more business. That’s a reasonable assumption. But it’s dangerous to count chickens before they hatch. What happens if the Postal Service doesn’t like its vehicles?
And this whole train of thought requires getting the Postal Service contract in the first place. Yet, when you look at Workhorse’s history, it’s been largely unsuccessful. In fact, arguably its biggest commercial success is putting the Lordstown deal together. That’s an achievement, no doubt, but not enough to justify this valuation.
WKHS Stock Verdict
Investors should be careful with Workhorse stock. It’s a bit of an odd situation, to be honest. It seems like the most promising angle to Workhorse – the Lordstown investment – has now taken on a life of its own.
Yes, Workhorse still has its residual interest in Lordstown through that 10% ownership position. And it’s a credit to the management team to create value like that. It was a creative deal and they struck while the iron was hot.
However, if you really like Lordstown, you can just buy that stock directly through the DiamondPeak listing. I’m not sold on the rest of Workhorse being a compelling investment.
There are a ton of EV stocks out there. Some of them are probably going to be big winners, but a lot of them won’t be. It’s becoming a saturated market, and there’s just not enough there at Workhorse yet to justify the current sky-high valuation on the stock. That could change in the future, but for now, Workhorse is a sell.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.