It’s been more than two months since I last wrote about Workhorse (NASDAQ:WKHS). At the time, I thought WKHS stock was entering the buy zone for speculative investors.
Trading around $12.50, I felt the company’s 8,000 vehicle backlog was worth betting on in the low teens or high single digits.
During June, Workhorse stock went up around 75%, primarily on the strength of Reddit investors piling in. InvestorPlace’s William White discussed the stock’s popularity in mid-June.
The stock has declined since July began, but does it have the legs to push through to $20 and beyond as I suggested it could in April?
It’s possible. Here’s why.
A $20 WKHS Stock
When I wrote about Workhorse in April, I specifically ruled out a $30- or $40-a-share valuation. That said, a $20, 12-month price target set by B. Riley analyst Christopher Souther seemed possible despite the loss of the United States Postal Service (USPS) contract.
“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 wrote on April 22.
Fast forward to today. Workhorse has filed a bid protest in the U.S. Court of Federal Claims to reverse the USPS’s decision. Who knows if it will be successful, but Redditors are using this potential game-changing event as a catalyst for future appreciation.
According to SwaggyStocks, WKHS has been one of the most discussed stocks on r/WallStreetBets, with 6.27% of the conversation focused on it on June 29, around the height of its recent growth. I can believe it. This thread about Workhorse is all over the map and has hundreds of comments. While the person who wrote it does make some good points about the rigged nature of the bid process, I can understand why InvestorPlace’s Louis Navellier recently suggested that Reddit investors forget about the USPS contract and focus on the future.
That’s a future where electric vehicle (EV) delivery trucks fulfill last-mile deliveries for millions of e-commerce orders. Between the C-Series vans and Horsefly drone, it’s still got a shot.
The Downside at Current Prices
If you look at the six analysts covering Workhorse, the median target price is $13, 6.6% below current prices. Of the six, two rate it a buy, with four suggesting it’s a hold.
One of the buys, according to TipRanks, is Christopher Souther, who I mentioned in the previous section. Souther is also the analyst at the top of the range when it comes to target prices.
Further, if you read Navellier’s article more closely, you’ll notice that he’s less than optimistic about the so-called backlog in orders. If it’s anything like the Lordstown Motors (NASDAQ:RIDE) debacle — Workhorse owns 10% and had to report a $137 million loss in Q1 2021 due to RIDE’s crumbling share price — WKHS will be in penny stock territory before you know it.
To date, I’ve seen no indication anyone suspects the same shenanigans are happening, but Reddit fans ought to keep that possibility in the foreground as they evaluate WKHS’s true value.
My IP colleague, Larry Ramer, recently suggested there’s not much good to say about WKHS stock. He believes that its future could include a visit to bankruptcy courts by the middle of 2022.
However, its current Altman Z-Score is 5.23, a long way from 1.81 and distressed status. But, of course, this score can change in a heartbeat, so it’s worth noting.
I’m not that pessimistic. I do believe it’s got a legitimate business that can stick around for many years.
However, given how far WKHS stock has come over the past month, speculative investors should be very hesitant to buy an entire position anywhere north of $15.
Why? The margin of safety, of course.
On the date of publication, Will Ashworth 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.
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.