As Workhorse Group (NASDAQ:WKHS) makes a go of it in the electrical vehicle market, the months ahead will present a double-sided litmus test, both for the Ohio-based company and the EV sector itself. Electrical vehicle manufacture remains in its infancy; meanwhile we as investors must ask whether WKHS stock will likewise mature — and the company develop a track record for delivering reliable vehicles at a handsome profit.
This compound question sure as hell beats all those mediocre puns that must be floating around. You know: Will Workhorse live up to its name? Does it have “horse” power? Will this investment “work?” Is Workhorse a thoroughbred? Or a nag? I want to gag. But I suppose it’s better than asking whether that pantyhose stock will give you a run for your money.
So, let’s cross-pollinate the verbiage and see whether Workhorse has legs to run (uh oh). Or wheels. Whatever. I do know this: A month ago I wrote, “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 how’d I do? Time to find out.
WKHS Stock, Then and Now
Back on Sept. 11, when last I examined Workhorse Group for InvestorPlace readers, its stock sold for $23.69 per share. It’s actually dipped a wee tad since then — it now fetches $22.90 — so the real issue lies in what’s changed and what hasn’t.
What made me cautious then remains true today. No matter how many Robinhood lemmings, uh, investors chase this stock like a Powerball ticket — and that number catapulted to 132,000 as of mid-August — the fundamentals simply aren’t there. Call me a value investing nerd, but as Cyndi Lauper once sang, nerds just want to have fun…damentals.
Workhorse is far from profitable and lately there’s been a fashionable term attached to that: “pre-revenue.” By another name, it’s “spin to win.” The only thing “pre-revenue” is good for, if that, is buying pre-ice cream at the pre-convenience store in the pre-strip mall. Fab! Or maybe “pre-fab” is more like it.
Why Workhorse Could Prevail
Yet it’s inevitable, and undeniable, that EV manufacturers need time to ramp up just about everything from manufacturing plants, to distribution, to marketing and sales teams. It’s still risky, I contend, to bet on the butterfly when it’s still aching to bust out of the cocoon. But WKHS stock may be — emphasis on may be — a different story. Maybe. Why?
First off, Workhorse was founded by Stephen Burns (not to be confused with the former “Blue’s Clues” host, though I suppose that’s highly unlikely). And for those paying attention, Burns is making a dynamic, downright exciting play with his new EV company, Lordstown Motors. It occupies the massive plant abandoned by General Motors (NYSE:GM) in March 2019. Everyone’s rooting for Burns’ venture, including Donald Trump. Meanwhile, Lordstown’s reverse merger with DiamondPeak Holdings (NASDAQ:DPHC) could close as early as Oct. 22.
Burns may be gone from Workhorse’s day-to-day operations, but he left behind a company that remains on something of an upswing. It reported first quarter earnings per share of 6 cents per share—woohoo, a profit! It caught Wall Street analysts, who were expecting a loss, off guard. Beyond this, Lordstown owns 10% of the company, and Workhorse announced on Oct. 12 that it has raised $200 million to increase and accelerate production. Can you spell “vrrrroooooom”?
For WKHS stock, the Future Looks Fuzzy
But just months ago in the second quarter, the positive earnings turned south. WKHS stock reported a loss of 12 cents per share, which neither beat nor fell short of expectations. All eyes, then, will (or should) be on the next earnings report. Workhorse isn’t expected to release that until Nov. 13, though this will likely offer no occasion to break out the bubbly. Quarterly per-share losses are forecast all the way through Sept. 21.
And yet, InvestorPlace compadre Josh Enomoto wrote just days ago that WKHS stock has benefitted greatly from the novel coronavirus pandemic — and could even more so into 2021. He reasons that aversion to brick-and-mortar shopping will create a robust demand for delivery vehicles, which happens to be Workhorse’s stock and trade.
It’s a fascinating argument. What’s more, I always urge investors to look at a stock in terms of broader contexts, whether related to sector or socioeconomic factors. Still I wonder if this is long-shot reasoning. There are plenty of gas-powered van vendors out there, too, and they don’t need to scale up. Meanwhile, we have an untested theoretical as to whether or how Workhorse can meet any flood of demand.
So, with the stock having little movement, the Robinhood investor honeymoon on a short-term wane, and four more projected quarters of loss, I’m going to stay put where I stayed put last month. Is WKHS stock still a good bet? Probably. But as I wrote then: “Watch your money closely, pay attention to the news…and ask investors in Tesla (NASDAQ:TSLA), what it’s like to develop nerves of steel.”
So there you go, Workhorse fans. Other than my going a little balder and getting a little fatter, nothing else here has changed.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.