Workhorse’s Q3 Results, Outlook Fail to Justify the Huge Valuation

Stocks to sell

Workhorse (NASDAQ:WKHS) delivered some positive news in conjunction with its recently unveiled third-quarter results. The upbeat developments, however, do not come close to justifying the still-huge valuation of WKHS stock. Concerns include accusations of quality issues and the lack of clarity of the company’s outlook.

Image of a Workhorse (WKHS) logo and drone on the side of a truck.

Source: Photo from WorkHorse.com

In a nutshell, Workhorse announced, in conjunction with its Q3 results unveiled on Nov. 10, that it  received a 500-truck order from a medium-size dealership chain,  Pritchard Auto Company. But last quarter, the company only delivered seven vehicles, with five going to Pritchard and two going to a previous customer, Ryder (NYSE:R).

Workhorse claimed that, prior to an outbreak of the novel coronavirus among its employees and other unexpected hurdles, it anticipated delivering 300 to 400 vehicles last quarter. Still, the bottom line is that the company only delivered seven vehicles in Q3 and said that it will be able to deliver the other 293 to 393 trucks previously targeted only in 2021.

In another piece of good news, however, Workhorse noted that two other, small dealers – Fluid Systems and eTrucks LLC – ordered an unspecified number of its trucks in Q3. Those orders, though, are probably quite small, since Workhorse did not divulge the number of trucks requested, while eTrucks ordered only 20 vehicles from Workhorse in Q2.

No Concrete News on UPS And USPS

But there was zero for the owners of WKHS stock to cheer about when it comes to Workhorse’s largest current customer UPS (NYSE:UPS), and its largest potential customer, the U.S. Postal Service.

Of Workhorse’s backlog of 1,700 vehicles, 1,000 of them were ordered by UPS. As I noted in my August column on Workhorse:

Two years ago, Workhorse partnered with UPS to design and build vans. The hope was that Workhorse vans would replace the 35,000 gasoline- and diesel-powered vehicles in UPS’s fleet, Barron’s recently reported. The shipping company ordered 1,000 of Workhorse’s trucks but has only acquired 350 of them.

Since August, there’s been no indication that UPS acquired any additional vehicles from Workhorse. And on Workhorse’s Q3 earnings conference call, CEO Duane Hughes offered no specific information whether the shipping giant plans to obtain more vehicles from his company.

As for the postal service, one thesis by those bullish on WKHS stock was that President Donald Trump would seek, before the election, to give Workhorse a huge contract for which the agency has taken bids. The election, however, has come and gone, and the deal was not awarded.

And Hughes had no new information about Workhorse’s chances of obtaining a multibillion-dollar deal from the postal service.

Previous Reports Cause Concern

The lack of new, encouraging information about UPS and the postal service are especially concerning because of previous reports about the EV maker. Specifically, a Seeking Alpha columnist states that Workhorse’s competitors for the postal deal are much more capable of meeting the contract’s requirements than Workhorse.

Moreover, short-seller Fuzzy Panda identified multiple technical glitches by Workhorse’s vehicles. It alleged that UPS had “already moved on from Workhorse,” while the company has no chance to win the postal service contract.

At the time that it wrote the report, Fuzzy Panda was shorting WKHS stock.

The Bottom Line on WKHS Stock

Workhorse (almost literally) only delivered a handful of vehicles last quarter. Meanwhile, the status of its relationships with UPS and the postal service is, at best, quite murky. And, it’s been accused of building multiple vehicles that suffered serious technical problems.

Despite all of these issues, WKHS stock still has a pretty huge market capitalization of $2.33 billion. Given all of these points, I continue to recommend that longer-term investors sell the company’s shares.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.

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