After falling 50% between late September and the end of October, Workhorse Group (NASDAQ:WKHS) stock appears to now be rebounding. Will its current rally last?
On Sept. 18, WKHS stock closed the trading session just above $30 per share. By Oct. 30, the stock price had been cut almost in half to $15.38 per share. Things looked dire for the company’s shareholders.
But in November, the shares of the Cincinnati, Ohio-based electric vehicle maker have rallied and closed on Friday at $25.78 each. The upswing has provided some much needed relief to investors.
Wall Street Coverage
The current rally was sparked by R.F. Lafferty analyst Jaime Perez initiating coverage of Workhorse Group with a “buy” rating and a price target of $29 a share. Many investors saw this positive outlook as a vote of confidence in WKHS and jumped into the name with both feet.
In his first report on Workhorse, Perez wrote that the company, which specializes in electric vans, has “proven technology,” with roughly 400 electric vehicles in operation and more than 5 million miles driven. Perez added that Workhorse is a current leader in the U.S. market for electric-commercial vehicles.
Perez also stressed that Workhorse’s pickup truck is well ahead of its main competition, Tesla’s (NASDAQ:TSLA) Cybertruck and noted that he expects Workhorse to achieve its full-year production forecast of 1,800 vehicles by 2022, if not sooner.
That is all good news for Workhorse and for the owners of WKHS stock. However, not everyone is as optimistic about the company’s long-term prospects. First, it’s only a matter of time before the Cybertruck comes to market.
Second, Ford (NYSE:F) just unveiled its fully electric “E-Transit” commercial van. And Ford is currently the leader in the U.S. commercial vehicle market. Workhorse faces some stiff competition moving forward.
Contracts and Profits
One of the main reasons why WKHS stock fell in October was that the company’s third-quarter earnings disappointed the Street. Its Q3 top line came in under $1 million, and Workhorse lost $84.1 million on the bottom line, as the company had to delay the production of its electric trucks. The Q3 results underscored the fact that the automaker does not currently have any major contracts and remains unprofitable.
While Workhorse is in the running for some potentially big contracts — including one with the U.S. Postal Service for 180,000 new trucks and another with the City of Orlando, Florida to provide electric utility trucks for the municipality — the company hasn’t yet won any major deals.
Some analysts have grumbled aloud that the company’s focus on commercial-electric vehicles limits its potential market at a time when it is facing heated competition from major automakers such as General Motors (NYSE:GM) and Volkswagen (ETR: VOW3), as well as Tesla, Ford and dozens of electric-vehicle start-ups. There continues to be speculation that Workhorse will be targeted for a takeover by a larger, more established automaker.
Steer Clear Of WKHS Stock
While it is encouraging that WKHS stock has been rallying in November, it is still too risky to take a position in the company. Given its lack of contracts, production delays and the growing competition it faces, investors should steer clear of Workhorse for now. There are too many other more established electric vehicle makers and automotive companies for investors to buy right now.
Among the five analysts who cover Workhorse Group, the median price target is $23.00 a share, with a high estimate of $29.00 and a low estimate of $19.00.
The median target is well below the current share price. The bottom line is that Workhorse will need to substantially change to justify investing in the company.
If it succeeds in winning a big contract or forms a major partnership with another established automaker, then perhaps buying WKHS stock will make sense. Until then, avoid putting money into the shares.
On the date of publication, Joel Baglole held a long position in TSLA,
