Editor’s Note: This article was updated on June 29, 2021, to remove some erroneous information.

Workhorse Group (NASDAQ:WKHS) stock closed below $12 on April 15. Then a gift from the investment gods fell into the hands of shareholders. B. Riley analyst Christopher Souther initiated coverage of WKHS stock with a buy rating and a $20 target price. 

Souther believes that the backlog Workhorse already has on the books is enough to keep it moving ahead despite the apparent loss of the multi-billion-dollar contract with the U.S. Postal Service.

WKHS stock rode high on speculation the company would win the contract to replace the Post Office’s entire fleet of vehicles. 

As of March 18, Workhorse had 126.9 million shares outstanding. Based on a $20 share price, it would have a market capitalization of $2.5 billion. Assuming the company builds all 8,000 electric delivery vehicles in its backlog, that’s a price-to-sales ratio of 4.2.

I don’t know about you, but I don’t recall many electric vehicle stocks with that low a P/S multiple. Tesla (NASDAQ:TSLA) is 24.7x, Nio (NYSE:NIO) is 17.5x and XPeng (NYSE:XPEV) is 13.2x. 

So, if Workhorse can deliver, Souther is right to give it a valuation that’s 63% higher than its value today. 

The million-dollar question is whether he’s right or not. I’ll consider both sides of the argument. 

We Don’t Know Why the Post Office Said No

U.S. Postmaster General Louis DeJoy stated in a March 23 interview that the Post Office thoroughly vetted Oshkosh Corp (NYSE:OSK) and its bid to build 165,000 next-generation vehicles. DeJoy even sees a fully electric fleet by 2035. 

That was a good three weeks after Workhorse released its financial results and confirmed that it would meet with the Post Office on March 3. Now, I’m not a specialist in government contracts, but the fact DeJoy was so confident about its decision a good 20 days after the scheduled meeting tells me it did not go well.

The question that I have for Workhorse bulls is this: Is it possible that Workhorse didn’t or couldn’t fulfill some parts of the contract? Is it also possible that Workhorse failed to make a move to electric lucrative enough for the Post Office?

On the first question, my esteemed colleague Josh Enomoto recently made three excellent points about Workhorse’s entry in the Post Office sweepstakes:

• EV performance may degrade under certain weather conditions
• EVs are essentially grid-dependent
• EV batteries are constantly declining in price, presenting opportunity cost problems

When you look at the situation from the perspective of the people at the Post Office making this multi-billion decision, the fact that Oshkosh could deliver a hybrid solution (pardon the pun) made it virtually impossible for government officials to overlook the practicality of their proposal. 

The Post Office is replacing its vehicles for a reason. They’re old. It needs vehicles on the road tomorrow, not the day after. 

The second question gets to the heart of the matter. Money. It’s possible that someone at the White House with a calculator figured out that Workhorse’s proposal was going to cost significantly more than Oshkosh’s. 

I’m not saying that’s what’s happened, but it’s not out of the realm of possibility. And as Josh stated, it’s not as if the winning bid was from a novice truck manufacturer. Far from it.

Is It Really Worth $20

The last time I wrote about Workhorse was after it lost the contract from the Post Office and its subsequent meeting with the USPS. As I said earlier, the only thing we’ve heard out of the Post Office is the Postmaster General’s confidence in the contract with Oshkosh. 

At the time, it was trading slightly below $15, well down from its February 52-week high of $42.96. I wondered if WKHS stock was a falling knife worth catching. I suggested that it was a speculative buy under $10. 

We’re not quite there, but we’re getting closer. If the USPS came out and stated unequivocally that Oshkosh was its dance partner, I have no doubt it would fall into single digits.

I can’t say whether it’s worth $20 or not. I can say with confidence it’s not worth $40, or even $30.

But if Workhorse gets those 8,000 vehicles out in the next 12-24 months, I don’t think there’s any question it’s worth more than the $12.50 or so it’s fetching as I write this. 

If you’re a really aggressive investor, I might buy a half position today and another half when it falls into single digits or if it starts climbing into the teens.

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.