No, I haven’t changed my tune. Workhorse Group (NASDAQ:WKHS) and WKHS stock is still a speculative buy.
That said, the latest purchase order from the Pritchard Companies makes me ponder the idea that as the purchase orders continue to pile up, Workhorse will eventually succeed in its vision to be a major provider of electric delivery trucks to commercial fleets across the country.
And while it’s got a long way to go, every move like the latest announcement is evidence that bit by bit, chief executive officer Duane Hughes moves the business from pipe dream to reality.
I don’t know what milestone will make investors fully admit that Workhorse is for real. Here are three off the top of my head that will lead to its ultimate success.
Workhorse Delivers in 2021
As the company stated in its third-quarter results, it plans to produce 1,800 vehicles in 2021. Given it planned to produce as many as 400 vehicles in the fourth quarter before Covid-19 hit, it doesn’t seem like an unwieldy number in the year ahead.
“Our strategic partnership approach to engaging with dealerships has paid off very quickly as evidenced by our recent 500 truck order from Pritchard Auto Company that will be financed by HCA,” Hughes stated in its Nov. 9 earnings release. “We believe this initial sale is just the start of this channel’s growth.”
In my last article about Workhorse in early November, I argued that despite Covid-19, the company is positioned better than most to benefit from e-commerce’s infamous last mile.
“Maybe Workhorse doesn’t have a shot at the USPS contract. And, most certainly, its stock possesses a nosebleed valuation. But commercial electric vehicles will happen in large numbers, especially where the last mile is concerned, and the company is positioned better than most to take advantage of this reality,” I wrote on Nov. 2.
In less than a month, WKHS stock has gained more than 80% and is looking to test its 52-week high of $30.99, which it hit in September. That makes its nosebleed valuation that much more expensive.
After all, this is still a company that’s generated less than $750,000 in sales in the first nine months of fiscal 2020 while losing $211 million. Fortunately, most of that loss had to do with the change in fair value ($164.1 million) of the company’s convertible notes.
In October, Workhorse issued another $200 million in convertible notes. These notes have a 4.0% rate of interest but can be reduced to 2.75% after meeting certain conditions. They’re convertible at $35.29 per share.
As long as the stock price remains high, Workhorse’s liquidity won’t be a problem heading into 2021.
As Covid Passes, WKHS Stock Will Move Higher
There’s no question Workhorse’s business has been badly affected by Covid. InvstorPlace’s David Moadel recently spoke about this reality.
“Not long ago, Workhorse admitted that its vehicle production has been profoundly impacted by the onset of the novel coronavirus,” Moadel wrote on Nov. 24.
“Specifically, the electric delivery van maker conceded that 36% of its plant workers are either sidelined by Covid-19 or awaiting test results. So obviously, delays in vehicle production are to be expected.”
Moadel reminds readers that the Pritchard Companies — which sell more than 30,00 trucks a year — have bigger plans beyond its initial purchase order of 500 vehicles. And while purchase orders aren’t the same thing as actual revenue, the company’s already generating actual revenue from its electric trucks. Hence, patience is likely to be rewarded down the road.
As I said earlier, I can’t say when the dam will break, and investors will start buying the Workhorse story. One only needs to consider the Tesla (NASDAQ:TSLA) story to know that the “it” moment when investors, en masse, turn from skeptics to believers is a hard one to pinpoint.
All I know is that anyone who listened to the Tesla skeptics in May 2018 and either sold their stock or refused to buy missed out on 832% in cumulative returns in the 30 months since. I don’t need a chart or table to know that’s better than the S&P 500.
Bottom Line: Workhorse remains a speculative bet, but you could have said the same thing about Tesla in 2018.
I believe Workhorse will ultimately succeed. Patient investors will be rewarded.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.