Workhorse Group (NASDAQ:WKHS) stock has fallen 24% since my last article on Sept. 29 and seems to be stuck here. This could be because WHKS stock is already up sixfold year-to-date and up 655% in the past 12 months. As I wrote in September the stock may have moved up too far, too fast.
Moreover, the shares have now pulled back more that 25% from their peak price at the end of November. However, I still have concerns about its high valuation. At best, it is worth maybe 10% more than today.
WKHS Stock Stalled by Contract Delays
Having moved up so fast, WKHS stock seems to have incorporated all the good news. Fundamentally, the problem is the company still does not make a profit and the forecast for going into the black is unclear.
So far there is no news about the huge USPS contract that could have Workhorse seeing a large order for electric vehicle mail trucks. The contract seems to be pushed out further and further. This has put a lot of pressure on WKHS stock.
For example, Trucks.com reported on Dec. 12 that Workhorse had broken up with its bidding partner for the contract to supply 180,000 next-gen trucks. Half of the $6.3 billion USPS order is supposed to be for electric vehicles, hybrid technologies and alternative fuels.
The problem is the USPS is only now saying that it will send out a request for proposals by the end of Q1 2021. This is another delay since originally the market was thinking the final contract wins would be posted by the end of 2020. An RFP is only the first stage in a long competitive review process by the Federal government.
Moreover, VT Hackney, Workhorse’s former partner was going to build the body of the truck, while Workhorse would provide the electric powertrain and chassis.
Where this breakup with its partner leaves Workhorse is anyone’s guess. But one thing is for sure. The market does not like this uncertainty — especially about such a large contract.
Moreover, if Workhorse ends up losing out on this contract could devastate WKSH stock.
Workhorse Group Valuation
Right now, analysts who cover the stock have valuations that are well below today’s stock price. MarketBeat shows that their average target is $19.57 per share from eight analysts. That is about 8.5% below the Dec. 14 close of $21.39.
However, analysts surveyed by TipRanks have an average target of $23.75, which is about 11% above today’s price. This is based on five analysts’ reports that were written up in the last three months.
Moreover, Yahoo! Finance reports that five analysts have an average price target of $26.80 for WKHS stock. The upshot is that there is a wide range between what one survey and another has for Wall Street analysts on this stock. This is a little bit unusual, as often sell-side analysts will tend to congregate around one general direction for a stock.
What’s Next for WKHS Stock
Barron’s believes WKHS stock is becoming a Wall Street favorite. Four of the five analysts covering the stock have a BUY or the equivalent on the stock.
Whatever happens with the Postal Service contract at the end of the month will determine the short-term fate of the stock. This is because the market is hoping that it receives all or a good-sized portion of that contract.
One or multiple bidders could win the deal worth up to $6 billion for up to 180,000 new trucks. Apparently, Workhorse’s CFO believes they are the only viable EV bidder.
My original article on WKHS stock using probability analysis and a sum-of-the-parts valuation. I put a $2.5 billion value on the stock. That meant it is worth $23.71 per share and leaves the stock still about 10% undervalued. But, frankly, if the USPS contract continues to delay, the stock could move sideways a good while.
The bottom line is that WKHS stock still trades at a huge valuation, as high as a price-to-sales ratio of 1,207 times its 2020 sales and 18 times 2021 sales.
Those would be high multiples for P/E ratios. But they measure sales. Sales numbers are larger than earnings. So something is off here.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake runs the Total Yield Value Guide which you can review here.
