For years now, the dialogue round Workhorse Group (NASDAQ:WKHS) focuses on a potential contract with the USA Postal Service. At one level, USPS hypothesis drowned in the remainder of the funding case.
That is to not say the USPS deal wasn’t essential. Clearly it was: WKHS inventory fell almost in half on February 23, when the company introduced it was going with it. Oshkosh (NYSE:OSK) as an alternative.
However the USPS deal alone was not sufficient to help WKHS inventory, which ultimately month’s excessive had a market cap approaching $ 5 billion. Workhorse was to make use of this settlement as a springboard to ascertain itself as a reputable participant in industrial electrical autos.
With out this settlement, there may be nonetheless a approach. And there are nonetheless hopes that Workhorse would possibly be capable of seize some form of victory from the jaws of defeat.
Both approach, extra is required. And on that entrance, Workhorse hasn’t delivered both.
Understanding the USPS Settlement
It was simple to see the USPS deal as doubtlessly transformative for Workhorse and for WKHS inventory. The contract has a complete worth $ 6 billion. That is larger than Workhorse’s most market cap.
However basically, the significance of the contract might have been overstated. Wholesale orders of this measurement are often not attractively priced. Workhorse is primarily an assembler of externally produced elements, which suggests a big chunk of the income would have been spent. Admittedly, the contract alone was not going to generate sufficient revenue to help the present valuation.
To be honest, that wasn’t essentially the purpose. The USPS deal would make Workhorse an trade chief. This might enable economies of scale for autos offered to different, primarily industrial, prospects. It might even act as a bridgehead inside the federal authorities for added, albeit extra modest, contracts with different businesses.
Workhorse nonetheless hopes to have the ability to save the deal. He arrange a gathering with the Postal Service to search out out why the company selected Oshkosh. Politicians in Ohio, the place Workhorse is headquartered, weighed in. They requested President Joe Biden’s administration to research the existence “Inappropriate political affect”, provided that the Oshkosh settlement solely offers for a small a part of electrical autos.
Some buyers see hope on this entrance. It would not matter, contract or no contract, the bull case right here wants extra.
Issues within the fourth quarter
The Bear’s case for Workhorse may be summed up merely: there simply is not a lot right here. This is the reason the Bears argued final yr that Workhorse had little probability of profitable any a part of the USPS contract.
The truth that the 2020 monetary outcomes seem to help this bear case has been misplaced within the postal service information. Workhorse generated solely $ 1.4 million in income till 2020. The corporate made a big revenue, however it all got here from the rising worth of Workhorse’s stake in Lordstown Engines (NASDAQ:WALK).
Much more worrying are the supply numbers. Within the fourth quarter, in keeping with the earnings name, Workhorse delivered solely seven autos for the quarter.
For a start-up enterprise, this may not be an issue. However just some months in the past, Workhorse was forecasting 2020 deliveries of 300 to 400 autos, most of which might be delivered within the fourth quarter. Though the following pointers have been drawn after Q3, a single digit determine for the quarter seems to be disappointing.
And that is a part of a long-standing development. It needs to be remembered that Workhorse focused 2000 deliveries in 2018. In accordance with the 2020 annual report, it delivered 370 autos in all its historical past.
Regardless of all of the claims about political interference, it was this drawback that was maybe an important issue within the USPS deal. Workhorse has merely by no means proven that it’s able to delivering a big order, not to mention an order valued at $ 6 billion. The corporate’s outcomes recommend that enterprise prospects largely really feel the identical.
The case of the WKHS motion
Actually, the story of Workhorse just isn’t over. The stake in Lordstown is value nearly $ 350 million and Workhorse can begin monetizing its funding this yr. There may be nonetheless over $ 200 million on the steadiness sheet. Chapter just isn’t on the desk.
Within the meantime, You are right here (NASDAQ:TSLA) sadly missed greater than its justifiable share of targets. Barely a yr in the past Nio (NYSE:NIO) was delay pay. The expansion of a automobile manufacturing enterprise just isn’t linear and definitely not all the time clean.
It’s subsequently too early to easily delist the shares of WKHS. However the flip facet is that in some unspecified time in the future the corporate wants to provide buyers a motive to belief, particularly if USPS sticks to Oshkosh. And we simply haven’t got that proof.
The corporate has not created a enterprise. It solely owns eight patents, in keeping with the annual report, though 19 purposes are pending. Analysis and growth spending amounted to simply $ 9.1 million in 2020, which hardly seems to be the form of spending that builds a know-how “divide.”
The USPS deal might have generated income to resolve many of those points. Perhaps it all the time shall be. However regardless, these issues nonetheless exist. They must be fastened.
As of the publication date, Vince Martin doesn’t maintain (neither instantly nor not directly) any place within the securities talked about on this article.
After spending time at a brokerage agency, Vince Martin lined the monetary trade for almost a decade for InvestorPlace.com and different retailers.