Workhorse Group (WKHS) is a company that designs, builds, and distributes battery-electric vehicles, including aircraft and trucks. The manufacturing company operates in the last-mile delivery sector and offers a wide range of drone-integrated electric vehicles. Based in America, the company was founded in 1998 and operated in two different locations.
Currently, the company has approximately 118 employees and a network of 400+ dealers. In addition to delivery vans and delivery drones, the company also has an in-house integrated system, which provides live metrics to track the performance of electric vehicles.
I am neutral on Workhorse Group as it has immense upside potential, strong support from Wall Street analysts, and substantial forward growth momentum, but it is currently running up large losses and has an inconsistent performance track record.
Strengths
Through several mergers and acquisitions, Workhorse Group has been able to integrate the latest technologies into its model to streamline its operations and work toward a more efficient and reliable supply chain model. In addition to a strong distribution network, the company also enjoys a good return on its investments through new revenue stream generation.
The strong dealer community and chain of reliable suppliers put this company in the limelight among the competitors. The company also has a team of highly skilled employees, and the continuous automation of its activities makes it easier to adapt to the industry’s changing trends.
Recent Results
In Q3 2021, the company recorded sales of -$0.6 million. In 2020, the sales reached $0.6 million in the third quarter of 2020. This decrease was primarily a consequence of the refund liability amounting to approximately $1.1 million.
The cost of sales also increased from $2.8 million in the previous year’s quarter to $11.5 million in Q3 2021. The net interest expense in Q3 2020 was $74.3 million, and in 2021 of the same quarter, it turned into net interest income of $18.6 million.
According to the unaudited statement of operations, the gross loss of the nine months ended in September 2021 reached -$31,423,282, compared to the previous year’s gross loss of -$5,333,628. This was a massive increase.
Valuation Metrics
WKHS stock is difficult to value as it trades at a very high price-to-sales multiple and does not generate profits while also growing at a rapid clip. It currently trades at a price-to-forward-sales multiple of 28x for December 2022 while seeing revenues come in very choppy over the years.
In 2016, revenue was $6.41 million and then increased by nearly 70% in 2017 to $10.85 million before plummeting to $0.76 million in 2018 and $0.38 million in 2019. In 2022, however, revenue is expected to come in at a whopping $22.47 million.
Nevertheless, even at this significant increase in sales, the company is expected to be deeply in the red, implying that significantly more growth is needed to scale the company to profitability.
Wall Street’s Take
Turning to Wall Street, WKHS earns a Moderate Buy consensus rating based on two Buys and no Hold or Sell ratings in the past three months. Additionally, the average Workhorse Group price target of $13.50 puts the upside potential at 232.5%.
Summary and Conclusions
Workhorse operates in a high-upside and rapid growth industry. As a result, it has enormous upside potential, as indicated by its average analyst price target that implies the stock could triple over the next twelve months.
The company is expected to grow rapidly in 2022 and could very well continue to pick up steam from there as the global automotive industry increasingly shifts towards electric vehicles.
That said, investors should keep in mind that the company is far from profitable and has an inconsistent revenue generation track record, so it remains quite speculative.
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