Workaholic (NASDAQ:WKHS) is back, up over 80% last month. On the surface, things don’t look good. Company lost $ 6 billion contract with U.S. Postal Service renew its aging fleet of delivery vehicles over ten years. Workhorse only generated $ 521,000 in revenue last quarter and only delivered 6 trucks (okay, there product 38). And Cathie Wood, mother of investing in technology growth, bailed out the action. Again, WKHS still has a market cap of $ 1.9 billion.
For individual investors, the “HODLing” bulls on Reddit, there is buzz around a new patent filing, the hope of a short tightening and a possible reversal of the contract award.
Unfortunately, the chances of instant gratification are slim. But WKHS stock is still a buy. Here’s why.
WKHS stock: rise and fall
following by Tesla (NASDAQ:TSLA) skyrocketing last year (+ 510%), investors looking for the ‘next Tesla’ made an offer on smaller electric vehicle stocks, most of which went public through SPACs. special purpose acquisition). Without surprise, Workaholic, which builds electric delivery and utility vehicles for last mile delivery, has always been a favorite with retail investors.
To some extent, the recent movement in WKHS stocks is part of the larger rally of even heavily shorted stocks. Favorite squeeze redditor AMC Entertainment (NYSE:AMC) climbed 121% over the past month. And, when it comes to being a prime candidate, WKHS stock has two key characteristics. First, The free float of WKHS 114 million is much lower than that of other similar high and short interest rate stocks. Second, the WKHS share has an exceptionally high short interest at 38% of the free float.
But Workhorse hasn’t always been just a pressure game. In August 2020, the company drew the attention of investors for its appointment as oone of the three finalists for one Contract over $ 6 billion to replace the aging fleet of US Postal Service delivery trucks. The anticipation around it The Next Generation Delivery Vehicle (NGDV) contract fueled an almost 1,000% rally in the stock last year.
USPS: no need to cry over spilled milk
Sadly, Workhorse’s fortunes quickly reversed in February of this year, when the USPS announced that she had awarded the entire 10-year NGDV contract at Oshkosh Defense (NYSE:OSK). A sharp drop in stocks followed. After hitting a high of over $ 40, stocks slumped below $ 8. By May, Cathie Wood had liquidated the vast majority of her position.
It wasn’t just WKHS investors who didn’t take the USPS news well. U.S. environmentalists and lawmakers were also unhappy, largely because only 10% of Oshkosh’s contract is electric vehicles. In May, more than 50 House Democrats of the United States wrote a letter urging a proposal that would allocate $ 8 billion to the electrification of the US Postal Service fleet. Workhorse is expected to win a significant portion of this new government contract.
For his part, Workhorse did not sit idly by. The company filed a claim with the United States Federal Claims Court, under seal, to block the procurement process that the USPS assigned to Oshkosh.
This dust around the USPS has galvanized a the entire Reddit bull community hoping for a short retail-led squeeze and contract award reversal. But, the best way to look at the stock is to forget about the USPS drama and look ahead. If it seems far-fetched to expect a $ 6 billion contract to be awarded to a company that recorded just $ 377,000 in revenue the entire previous year, it’s probably because it’s is the case.
Numbers always matter
Even if Workhorse manages to land an additional contract for the electrification of the USPS, the challenges are considerable.
First, Workhorse did not manufacture or deliver trucks on a large scale. The company produced just six vehicles in the last quarter. Since the start of the year, the company has so far manufactured 38 of its C Series Vans. While this is still more than double the amount produced in 2020, it is a very small number. Make his The goal of 1,000 vehicles for the full year may also be a stretch due to widely documented industry supply chain issues.
Second, while the company Is have other orders for its utility vehicles, these are much, much smaller than the USPS contract. Workhorse’s biggest wins are 1) a contract for the supply of approximately 6,320 vehicles to Pride Group Enterprises, a commercial vehicle rental company, and 2) another at supply 500 vehicles to Pritchard companies. Other high profile announcements include Ryder System (NYSE:R), who announced accontract to place Workhorse C-1000 vehicles on its peer-to-peer truck rental platform. FedEx (NYSE: FDX)
Although the company claims to have orders for more than 8,000 vehicles, it is uncertain whether these orders will be translate by real income. The agreement with the Pride Group, for example, depends on the demand for delivery vehicles from the end customers of the Pride Group. This means that the final number of vehicles delivered could be much lower than the 6,320 announced in the press release.
Competition, young and old
Third, if we look at this market honestly, it is clear that the barriers to entry into the electric delivery vehicle space are not that high. Workhorse’s technology is not much differentiated, and the company is likely to face a lot more competition from traditional automakers, including Daimler (OTCMKTS:DMLRY), General Motors (NYSE:DG) and Ford (NYSE:F), which are also planning to manufacture commercial electric vehicles.
These companies have a considerable scale of manufacture as well as a larger customer base from which to potentially sell their electric vehicles. Even other upstarts, such as the privately held Rivan Automotive, are poised to gain traction, thanks to large partnerships. For example, Amazon (NASDAQ:AMZN) has already started using Rivan delivery vans in some places. He plans to have up to 100,000 vehicles on the road through this partnership over the next decade.
Finally, Workhorse’s 10% stake in electric truck manufacturer Lordstown Engines (NASDAQ:DRIVE) doesn’t look like it’s going to take off any time soon. Workhorse took a non-cash accounting charge of $ 136.6 million in the last quarter due to the decline in the market value of RIDE shares. RIDE stock fell more than 40% in the first quarter, the company inflated his order book.
I believe i can fly
To be fair, none of this sounds like a compelling long-term investment thesis. So what else does Workhorse have for this? A lot, potentially, for patient investors. The workaholic Gadfly drone, designed for parcel delivery, is really the singular bull case for the WKHS stock.
Delivery drones sound futuristic. And there are security and logistical issues. But businesses are starting to reap the benefits of driver productivity and faster delivery. While a drone is delivering, the driver can return to their seat and move on to their next delivery, improving efficiency. When the drone has completed its task, it locates the vehicle and returns to its rooftop gantry, ready for its next delivery.
The Horsefly, in preparation for almost a decade, suffered from critical quality issues including poor navigation software and substandard build. Now he could ffinally be ready to take off. the unmanned aircraft system (UAS) is actually in the process of being certified by the Federal Aviation Administration following a formal request by Workhorse in October 2020.
Its use is currently limited to situations where the operator can see the drone during the entire flight. But with certification possibly arriving by the end of the year or early 2022, its use case could change very quickly. Notably, during the company’s first quarter earnings call, management said it delivered its first HorseFly system to a commercial test customer.
FedEx (NYSE:FDX), UPS (NYSE:UPS) and DHL (OTCMKTS:DPSGY) have already announced their interest in drone delivery. Amazon has already won FAA approval for its Prime Air drone delivery fleet. Walmart (NYSE:WMT) announced this week a investment in DroneUp, an on-demand drone delivery network, following a pilot last year with automated deliveries of Covid-19 test kits. The retailer also has two other drone trials – one with Flytrex for groceries and essentials and another with Zipline for health and wellness products.
The result on WKHS Stock
Despite the recent surge in stocks, the retail hype, and the promise of a future filled with drones, the fundamental narrative around WKHS stocks has not changed. Workhorse remains a speculative buy. But with shares trading at 8x estimated sales in 2022, the valuation doesn’t seem unreasonable against the backdrop of broader valuations in the EV sector.
For investors keen to see the long term picture, WKHS has a legitimate chance in the last mile delivery segment, which is great for EVs given the low maintenance costs and lower range issues. Sometimes good things happen to those who wait.
Your comments and reactions are always welcome. Let’s continue the discussion. Write to me at [email protected].
At the time of publication, Joanna Makris had (directly or indirectly) no position in any of the stocks mentioned in this article. The views expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.
Joanna Makris is a Market Analyst at InvestorPlace.com. Strategic thinker and fundamental investor in public equities, Joanna draws on over 20 years of Wall Street experience spanning various segments of the technology, media and telecommunications industries at several global investment banks including Mizuho Securities and Canaccord Genuity.