After bottoming at below $10 last month, Workhorse Group (NASDAQ:WKHS) caught the eye of Reddit’s WallStreetBets. WKHS stock has a short interest of almost 40%. The subreddit group reasons that a short-squeeze would inflect big losses for bears. So, when Workhorse shares took a run for $20, the rally would last until buyers lost momentum.
The bad news is that trading volume peaked within days after the initial rally in early June. Without strong fundamentals ahead and little hope for major contract wins, WKHS stock will likely resume its downtrend.
WKHS Stock Running on Hope
For much of last year, rampant speculation sent Workhorse to the $20 to over $40 trading range. The stock collapsed in February. The U.S. Postal Service awarded a multi-billion dollar modernization of the postal delivery vehicle fleet to Oshkosh. Oshkosh would supply up to 165,000 units over 10 years, earning $482 million initially. The USPS did not award a single order to Workhorse. That failure undermines Workhorse’s prospects. Without a big contract, other customers will likely follow suit. Workhorse has an unsurmountable job ahead to win any major deals.
On June 16, Workhorse started a federal court fight over the lost USPS contract.
The official protest looks like sour grapes.
At best, the company may ask USPS for feedback on where it went wrong in the contract bidding process. The USPS hired Oshkosh to supply fuel-efficient internal combustion engines or battery-electric powertrains. The hybrid approach is sensible. It will not rely solely on next-generation electric-powered vehicles. Had USPS chosen Workhorse, it is betting on a firm that lacked experience for large-scale projects. It would also expose itself to the risks of having only EV-powered vehicles.
Below: WKHS shares score poorly on all metrics.
Workhorse fails on all metrics
Stock Rover offers a 9/100 valuation score, which is generous. With losses mounting, valuations will worsen. Conversely, at a growth score of 47/100, any decently-sized contract would immediately add to future revenue.
Workhorse is one of three companies submitting final bids to the USPS. It was the only one proposing an entirely electric mail fleet. Unfortunately, the USPS would need billions in government funding from Congress to have more EVs in its fleet.
Fair Value
Wall Street analysts mostly gave up on Workhorse’s upside prospects. The average price target is $15.38. Investors run the risk of more downside ahead. Before the June rally, led by a renewed interest in EV stocks, Workhorse traded in a downtrend. It could have fallen to around $5.00 had buyers not speculated on a short-squeeze.
Investors have no way to model a fair value for the company. In the first quarter, Workhorse posted a loss of 98 cents a share. It reported revenue of just $521,000. This is still up sharply from $84,000 last year. The increase is due primarily to an increase in trucks delivered. It delivered a total of only six trucks in the quarter.
Cost of goods sold soared to $6.2 million, up from $1.7 million last year. Shareholders have no way of calculating the company’s break-even point. Without a bigger contract, costs per unit will rise. The company has no economies of scale through single-digit unit sales.
Workhorse’s net loss of $120.5 million is particularly troubling. With $205.1 million in cash on hand as of March 31, the company will run out of money.
Your Takeaway
Workhorse is a pure, speculative gamble. Trading in the double-digit price range, the stock offers more downside risks than any upside. No analyst is predicting any upside in the next 12 months. Speculators may want to avoid holding the stock. Instead, wait for a deal announcement. The stock will rally but the news is worth paying for. This would lower the chances of the company selling shares to raise the much-needed cash.
On the date of publication, Chris Lau 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.