- Should you buy Workhorse Group Inc (NASDAQ: WKHS) stock now? Here is some information to help you decide.
A lot of eyes have been on Cincinnati, Ohio-based Workhorse Group Inc (NASDAQ: WKHS) this week as the heavily traded manufacturing company reported its quarterly earnings. Workhorse Group is known for manufacturing electrically powered delivery and utility vehicles.
History Of Workhorse Group Inc (NASDAQ: WKHS)
Workhorse Group originally started out back in 1998 by a group of investors that took over production of the P30/P32series step-van and motorhome chassis developed by GM. Then in 2005, the company was taken over by Navistar International — which was selling the company diesel engines.
In 2007, the AMP Electric Vehicles brand was established as a developmental-stage vehicle electrification company. Around that time, AMP started experimenting with adding battery-electric power to two-seat roadsters. AMP Electric Vehicles went public in 2010 under the OTC market with the symbol “AMPD.” AMP pivoted away from passenger vehicles and started focusing on electrifying commercial vehicles shortly after and this led to a development agreement with Navistar. As part of the development agreement, the initial project was to re-power a 1,000 cubic foot delivery van. The first vehicle was delivered to Navistar in August 2012 and it passed the company’s requirements and performance test.
In 2013, AMP entered into an agreement to buy the Workhorse brand, logo, intellectual property, patents, etc. from Workhorse Custom Chassis LLC, which was a wholly owned affiliate of Navistar International. And AMP also bought the Workhorse Custom Chassis assembly plant in Union City, Indiana in March 2015. This made the company an OEM and enabled it to manufacture a new medium-duty truck chassis in the 14,500 to 23,500 GVW class. Along with the plant assets, the company made an exclusive arrangement with UpTime Parts for logistical and spare parts support and the 400+ network of dealers provided AMP with unequaled nationwide support for their vehicles.
In March of 2015, AMP had formally changed its name to Workhorse Group. And in November 2016, Workhorse announced it was working on an electrically powered pickup truck called the W-15. Duke Energy committed to buying 500 of the vehicles after it was announced.
Last year, General Motors confirmed it was talking to potentially sell Lordstown Assembly, which was its idle 6.2-million square foot manufacturing plant in Lordstown, Ohio to the Workhorse Group. Then in November 2019, the newly constituted Lordstown Motors Corporation — of which Workhorse Group has a 10% stake — bought the shuttered Lordstown Assembly Plant from General Motors. Workhorse Group also announced a licensing agreement with Lordstown Motors for their W-15 pickup truck.
Workhorse Stock Price Surges
The stock price of Workhorse Group popped over 400% over the last 3 months as the company has been hitting some key milestones. One of the reasons for the stock price increase last week was due to the announcement that Lordstown Motors was going to go public through a special purpose acquisition company (SPAC) called DiamondPeak Holdings. With the SPAC deal, Workhorse’s stake in Lordstown is estimated to be valued at about $160 million based on the IPO terms.
Workhorse has also been making progress in improving the efficiency of package delivery. For example, it is developing a drone called the Horsefly — which enables delivery personnel to make more deliveries for each stop.
Last month, Workhorse reported it received safety approvals for its electric vans. Workhorse noted that it actually became the first and only medium-duty battery electric vehicle (BEV) OEM to receive approvals from both the Environmental Protection Agency (EPA) as well as the California Air Resources Board (CARB) thus permitting the company to sell vehicles in all 50 states.
Workhorse also saw more incoming orders for its vehicles. For example, Workhorse received an initial purchase order for 20 C-1000 trucks from eTrucks LLC, a newly-launched truck buyer, reseller, and financier.
And Ryder Systems also received two of Workhorse’s first vans in July. The company also reaffirmed previous production and delivery target of 300-400 vehicles in 2020.
Due to those factors, Cowen analyst Jeffery Osborne increased the price target of Workhorse from $11.50 to $20 per share (Buy rating for Workhorse also maintained). And BTIG analyst Gregory Lewis increased the price target of Workhorse from $10 a share to $26.
You can learn more about the Workhorse stock price surge in this interview with Workhorse CEO Duane Hughes:
For the quarter, Workhorse saw a loss of $1.76 per share off of $92,000 in sales for the second quarter. The company is considered revenue, which is why the sales were under $100,000. The $92,000 in sales for the second quarter is up from $5,500 in Q2 2019.
“In the first half of this year we accomplished a series of major operational and EV industry milestones, culminating in the first official deliveries of our C-Series trucks to Ryder just a few weeks ago,” said Hughes in a statement. “Additionally, after acquiring the requisite various state and federal approvals in recent months, we are now the only medium duty BEV OEM permitted and able to sell and deliver our vehicles in all 50 states, which should allow us to further distance ourselves as the first movers in the last-mile EV space. Widening our sales funnel through tax incentives, government programs, and strategic partnerships, all of which we now have, will allow us greater opportunities to build on our growing backlog. We are now focusing on maximizing our efficiency and output as we look to ramp production throughout the remainder of this year to meet our ambitious delivery campaign goals.”
The cost of goods sold increased to $1.5 million from $930,000 in Q2 2019. This was due to driven by increases in labor and materials related to C-Series production.
The selling, general, and administrative expenses increased to $3.9 million from $2 million in the same period last year due primarily to increases in consulting expenses, higher employee-related costs, and incentive stock expenses. And R&D expenses increased to $1.6 million from $1.2 million in the second quarter of 2019 due to increases in engineering, staffing, and consulting expenses related to the design of the C-Series.
“It should be noted that this significant increase of $108.4 million in interest expense was almost exclusively due to the change in fair value of our convertible note and the mark-to-market adjustment for some non-dilutive warrants issued to a lender,” added Workhorse CFO Steve Schrader. “Both of these GAAP adjustments are non-cash and primarily dependent on the underlying stock components of financial instruments. These large adjustments were the result of a stock price of $17.39 on June 30th compared to $1.81 on March 31st. Due primarily to these non-cash adjustments, our net loss was $131.3 million compared to a net loss of $20.1 million in the second quarter of 2019. A better indication of operating performance would be loss from operations which was $7.0 million this quarter compared to $4.1 million in the second quarter of 2019.”
Workhorse recently set up $70 million in financing and the exercising of previously issued stock warrants and options. And now Workhorse has approximately $105 million of cash availability.
Workhorse Group Stock (NASDAQ: WKHS): Should You Buy It Now?
In another analyst consensus report that I read, 1 analyst says strong buy, 2 say buy, 1 says neutral, 0 say sell, and 0 say strong sell. Based on the price targets mentioned by the analyst reports along with the consensus report, I plan to personally plan to gradually increase my position in Workhorse over time. Even with the surge in the stock price over the last few months, I believe the company still has plenty of room to grow.
I recommend that investors buy-and-hold Workhorse for the long-term. However, the stock price still seems volatile to me so I recommend that you make Workhorse a small percentage of your overall portfolio. Pre-revenue companies also make me nervous but based on all of the information provided, I think that Workhorse could become a well-known brand for decades to come.
Disclosure: I own a small number of Workhorse Group Inc (NASDAQ: WKHS) shares. I wrote this article myself and I do not have any business relationship with any company whose stock I write about. I am not a financial advisor and all articles are my opinion. You should do your own due diligence and consider talking to a financial professional before investing.