re: Is anyone following WorkHorse ( WKHS )?

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Is dphc still a buy?

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Workhorse: Let's Pull In The Reins Sep. 18, 2020 , Jeff Vande Hey Jeff Vande Hey

Summary
Workhorse is a tiny company with some convincing growth catalysts. Those growth catalysts are as strong as they were a few months ago. At the same time, the market cap has increased 2400%, and the stock looks to have gotten ahead of itself. The upside no longer outweighs the risks.

Just three months ago, I penned an article about Workhorse Group (WKHS) referring to the company as a "Potential Thoroughbred". Even at that time, investing in Workhorse came with significant risk.

The stock had just tripled in value, the company had plenty of debt, and it was on track to deliver a mere 350 vehicles this year. Yet, with its powerful partnerships, patent portfolio, and unique business niche, the possibilities for explosive growth were undeniable. The stock was trading at $4.99 per share, and as an investor, the potential rewards outweighed the risks.

Fast forward to today and all of the catalysts for growth remain in place. In fact, an argument could easily be made that the company is in better shape than it was three months ago. Its partner and customer list still includes such formidable names as UPS (UPS), USPS, DHL (DPSTF), FedEx (FX), and Ryder (R). And, in recent months, the company has secured significant financing, expanded its deal with Ryder, and inked a strategic deal with Hitachi (OTCPK:HTHIY). Life is good, right?

Well, sort of. The kicker, of course, is that the stock price has risen dramatically in recent months. Since the run-up began on June 3rd, the stock is up more than 1400%.

If you think that is an eye-popping stat, take a look at the change in market cap. Workhorse Group's market cap has increased by 2400% in less than four months. Life does look good for the company. However, the only question most of us care about is not whether or not life looks good for the stock price. If not, it may now fall into the category of "good company, bad stock".

Let's take a closer look. ChartData by YCharts Workhorse stock price and market cap appreciation

So Many Questions
I continue to believe that Workhorse has some excellent growth catalysts and operates in a promising niche market. As I mentioned in my most recent article, the company is in its infancy, and this story is going to take 3-5 years to play out. Here is just a sampling of things that may play positively into the Workhorse story but come with no guarantees:

What percentage of last-mile delivery trucks will be EV in the future, and how long will it take for the transition to take hold.

Whether EV credits will disappear in the future. This is significant. In Tesla's (TSLA) most recent blowout quarter, it was widely reported that the company would have reported a loss, had it not been for regulatory credit sales.

The UPS partnership. Workhorse had been growing its partnership and recently received a 1,000-vehicle order. While that is promising, UPS also made an order of 10,000 electric delivery trucks from UK-based startup Arrival. UPS has worked side by side with Workhorse for a long time, but it is not married to Workhorse. Only time will tell how much the partnership grows.

USPS contract. Probably the most publicized potential catalyst. Great promise, no guarantees.

The Lordstown stake. This is definitely a positive. The question is just how much of the current $2.8 billion market cap can Lordstown account for. A significant Workhorse shareholder, Formidable Asset Management, stated the Lordstown stake could be worth up to $1 billion. If that proves true, at the current share price, the rest of Workhorse Group has to prove itself to be worth $1.8 billion.

Drones. I personally have no way to even try to value that part of the business. None of the above-mentioned items are negatives. However, none come with anything close to numerical guarantees either. While there are projections involved with any investment, when we are dealing with a company that only had $377 million in sales last year, the level of uncertainty is great.

Day Trading Rules the Day A look at the chart below that shows something that borders on ridiculous. Tiny Workhorse with 82 employees (in the process of hiring 200 more) trades eight times as many shares per day as UPS or FedEx. It trades 40 times as many shares as Ryder and about 100 times as many as Hitachi. Astoundingly, Workhorse even has a higher average trading volume than Facebook (FB).

The incredibly high trading volume for a very small company seems to indicate there is a lot of day trading going on. The fact that the stock price is so reliant on day trading further challenges my comfort level.

Valuing This Beast
This is not easy, and is certainly not an exact science. Workhorse, like most EV companies, is not currently profitable, and it's not like profits are right around the corner either. Because I would rather not rely on the traders who are exchanging 30% of the company's shares on a daily basis, we need to look for better, yet admittedly imperfect, methods.

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