Workhorse Group (NASDAQ:WKHS), an electric van manufacturer, is getting a second look by value investors. The main reason is that WKHS stock is now cheap and the company is still on a growth track, despite losing a major U.S. Postal Service contract.
Since Feb. 4 the stock has dropped from its peak of $41.34, and the news on Feb. 23 that it lost out to Oshkosh Defense on the postal contract. WKHS stock is trading around $13 with and a market value of just $1.63 billion. That represents a drop of over 68% in the past two months.
Moreover, analysts expect that revenue this year will exceed $110 million ($110.5 million as forecast by analysts surveyed by Seeking Alpha). In addition, for 2022, they foresee $282 million in revenue making electric vans for various large end-users.
Value Investors Interested in WKHS Stock
That puts WKHS stock on a reasonable forward price-to-sales multiple of just 5.78 times revenue for 2022. This is the kind of multiple that makes value investors interested in a stock, especially one that has fallen more than 60% in the last tw0 months.
Ark Investment Management, which runs value-oriented exchange-traded funds (ETFs) started by Cathie Wood, recently began buying shares in WKHS stock, according to Seeking Alpha. This was the second round of buying this month by the fund. Given that Cathie Wood has interests in many disruptive stocks, including in the electric vehicle industry, that gives WKHS stock a sort of EV imprimatur.
In addition, Barron’s reported recently that B. Riley analyst Christopher Souther launched coverage on WKHS stock with a “buy” recommendation. His price target is $20, or about $7 over recent price, up about 53%. He writes that Workhorse has the first-mover advantage with all-electric delivery vans. He also predicts $110 million in revenue this year for the company.
It remains to be seen if the company is on track to make this revenue. Workhorse expects to release its first-quarter earnings on May 10. Analysts estimate revenue of just $2.33 million. This implies that the company will pull in large revenue contracts later this year.
So far, the company has talked about its order book from Pritchard Companies and a dealer named Pride Truck Sales. This brings its backlog with both companies to 8,000 all-electric delivery vans.
With more than $200 million in cash and this order book, the company could meet analysts’ 2021 targets.
What to Do With WKHS Stock
Analysts do not expect Workhorse Group to be profitable before 2023 when it is forecast to make just 12 cents per share. However, the same analysts project 65 cents earnings per share (EPS) in 2023 and $1.98 in 2025.
That puts WKHS stock on a forward price-to-earnings (P/E) multiple of 20 times for 2024 and 6.58 times in 2025. However, these projections are four and five years in the future and need to be discounted to the present.
For example, using a 10% discount rate compounded for four years, the 2024 EPS rate falls to 68.3% of that projected $0.65 EPS, or $0.444 per share. That puts WKHS stock on a forward 2024 P/E of 29.3 times.
In addition, the 2025 EPS rate of $1.98 reduces to 62% of that amount or $1.23 per share on a present value basis. This implies a discounted forward P/E of 10.6 times. That is still a very cheap valuation.
A more appropriate value would be 15 times earnings or $18.45 per share (i.e., 15 x $1.23). This implies a potential gain of 41.6% for the stock over the next five years.
Even if it took three years for WKHS to reach $18.45, the ROI would be 12.29% per year on a compounded basis. That is not a knock-your-socks-off ROI, but it is still likely better than the market’s long-term average return.
Bottom line: WKSH stock looks cheap, and is worth at least $18.45 per share, or 42% higher than today.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.