EV truck maker Workhorse Group (NASDAQ:WKHS) has had a torrid 2021 so far. WKHS stock has shed more than 42% of its value since the beginning of the year. With a disastrous first-quarter earnings report, marked by virtually nil revenues and negative margins, the stock has taken a hammering. The bulls have talked up the company’s chances of winning the USPS Next Generation Delivery Vehicle contract (NGDV). However, at this point, it appears unlikely, which leaves minimal incentive to invest in WKHS stock at this time.
WKHS stock started the year off priced at roughly $21, and got to as high as $43 in February. The stock is now trading at around $11, representing a 74% drop from its highs in February. The bearish sentiment surrounding the stock is understandable as it has hardly any growth catalysts which can lift it out of the rut it is in.
Deplorable First Quarter Results
Workhorse reported disappointing first-quarter results a couple of months ago. Revenues came in at $521,000, which were significantly below analyst estimates of $2.3 million. It produced just six trucks in the first quarter. Additionally, the management lowered its 2021 production target to 1,000 trucks, down from the previous forecast of 1,800 trucks.
Moreover, gross profits were at a negative $5.7 million, which rose considerably from its $1.7 million figure in the prior-year quarter. Operating loss was a hefty $153.1 million. It included a 10% drop in its Lordstown Motors stake. It’s selling, general, and administrative expenses shot up to $6.9 million from $5.6 million from the prior-year period.
Furthermore, free cash flows deteriorated considerably and were at a negative $36 million. The company has heavily depended on its debt to stay afloat and secured $200 million in convertible loan notes in the fourth quarter last year. Moreover, it has also diluted its shareholding by over 70% over the last year. With the massive reduction in its cash flow balance, due to its attempt to increase production of its electric trucks at scale, its cash position will require more cash infusion ahead.
Workhorse has been around for over a decade, and in this time, it has failed to create value for its investors. It’s always been deemed as a short-term target, where returns have been driven primarily by sentiment rather than its fundamentals.
It has recently filed a complaint against the USPS on awarding defense contractor Oshkosh Corporation with the prestigious NGDV contract. At this stage, it seems unlikely that anything will come out of it. Perhaps one bright spot for Workhorse is its HorseFly system. It is undergoing FAA certification at this point, and the company expects the approval process to take up to two years at least.
ARK Invest, one of the institutional investors in Workhorse, believes parcel drone delivery could be the next frontier for eCommerce. It believes that revenues from parcel drone delivery could rise to a massive $113 billion by 2030. Hence, the HorseFly could become a significant money-spinner for Workhorse.
Bottomline On WKHS Stock
WKHS stock has understandably been on a negative run in the past few months. Workhorse reported deplorable financial results in the first quarter and lost out on the all-important NGDV contract. With its worrying financial position, you’d expect more dilution and debt to weigh in on its business. The bulls have talked up the potential of its HorseFly drone technology, but there’s still a long time before it can have an impact on its top line. Hence, for now, it’s best to steer clear of WKHS stock.
On the date of publication, Muslim Farooque 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