Bull Thesis for Workhorse Group Is That Things Can’t Get Much Worse

On Apr. 6, I recommended that investors of electric delivery van maker Workhorse Group (NASDAQ:WKHS) should remain loyal and stay the course with WKHS stock. Unfortunately, my bullish call was off the mark.

A Workhorse W-15 hybrid electric pickup truck on display at a branding event in Flatiron Plaza in New York.
Source: Shutterstock

Today, the sentiment surrounding Workhorse couldn’t be much more pessimistic. It’s certainly quite different from the optimism in early 2021, when investors hoped that the automaker might win a contract from the United States Postal Service.

That contract ended up going to rival Oshkosh in late February, and it seems as if the investing community has abandoned all hope for Workhorse ever since.

So now, we have more data in the form of a recent quarterly earnings report. We’ll certainly take a look at the numbers – prepare yourself to be alarmed, though there might be an opportunity for bold contrarians here.

A Closer Look at WKHS Stock

If it’s any consolation, WKHS stock is higher than it was a year ago. In fact, in late May of 2020, the shares were priced at at less than $3 apiece.

Folks with impeccable timing enjoyed outstanding returns over the ensuing months, as Workhorse shares topped out at $42.96 on Feb. 4, 2021.

After that, gravity set in and WKHS started to decline sharply. By May 25, the shares were trading at $8 and change.

Meanwhile, Workhorse has trailing 12-month earnings per share of -65 cents. That’s not too horrendous, but the stockholders will definitely want to see that number turn positive in the coming months.

Could that actually happen? Let’s drill down on the freshly released fiscal data and see how Workhorse is faring as it strives to achieve profitability.

A Challenging Quarter for Workhorse

If you haven’t yet seen Workhorse’s first-quarter stats, you might want to brace yourself.

During those three months, the automaker delivered six C-Series electric vans to customers. Yeah, that’s pretty bad.

In regard to Workhorse’s first-quarter revenues, whether it’s good news or bad news depend on your perspective.

Analysts polled by FactSet were, on average, expecting $2.3 million in quarterly revenues.

I can only imagine that they were rather disappointed when Workhorse announced $521,000 in revenues.

On the other hand, that’s a pretty good improvement over the approximately $84,300 reported in the year-ago quarter.

Shifting our attention to the bottom line, we should probably keep our expectations low as Workhorse posted a net loss of $120.5 million during 2021’s first quarter.

As a basis of comparison, consider that Workhorse reported net income of $4.8 million in the year-ago quarter.

Here Come the Excuses

There were some circumstances during the first quarter of 2021, which might help to explain Workhorse’s dismal results.

During those three months, Workhorse took a $136.6 million hit due to the company’s ill-timed investment in Lordstown Motors (NASDAQ:RIDE).

When I say, “ill-timed,” I mean that the Lordstown share price slumped by around 41% during the first quarter of this year.

And if you’re looking for more excuses, you can always point to the global microchip shortage. After all, Workhorse isn’t the only automaker to cite this issue.

Due to the chip shortage and possibly other factors, Workhorse has reduced its 2021 vehicle production target from 1,800 units to 1,000 units.

With that, CEO Duane Hughes adduced several contributing factors to Workhorse’s subpar quarterly performance.

“Bottlenecks within the global supply chain and offshore shipping delays of commodity raw materials and components as well as our initial stages of production limited our capacity to produce during the first quarter,” Hughes elaborated.

The Bottom Line

Everything I’ve mentioned today is known to the investing community, and is priced into WKHS stock already.

Perhaps contrarian investors can lean into the peak pessimism, in hopes of an imminent turnaround.

Please, don’t over-leverage yourself if you choose to try this thesis out. It’s for small, speculative positions only – and it’s reserved for loyal Workhorse fans, with strong stomachs.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Article printed from InvestorPlace Media, https://investorplace.com/2021/05/bull-thesis-for-wkhs-stock-is-that-things-cant-get-much-worse/.

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