Workhorse Group (NASDAQ:WKHS) has been treading water lately as I suspected it would in my last article on Dec. 15. Since then, WKHS stock has risen less than 5%, which is what I thought would happen.
I based this on the fact that until the company wins the large U.S. Postal Service contract, the stock won’t move much. That contact could be worth as much as $6.3 billion and will be a company maker.
In the past month, Workhorse stock is up 10%. However, in the last six months, WKHS stock has done well, up 42%.
Fully Valued Workhorse Stock
The problem with Workhorse right now is that the stock looks to be fully valued. This is despite the recent news that it won a large purchase order contract from Pride Group Enterprises. Pride Group is a large Canadian and U.S.-based, privately held company with businesses in transportation equipment retail, wholesale, rental, leasing and logistics. There was no dollar value on the order, but it was for 6,320 C-Series all-electric delivery vehicles.
Workhorse’s CFO, Steve Shrader, said the order was worth $500 million, according to the Cincinnati Business Courier. This is pretty significant, especially if you consider that the company is only expected to make $138.6 million in sales during 2021.
According to the newspaper, the Pride order is expected to be completed in batches, with initial delivery slated for July. Therefore, it is possible the contract may not already be included in analysts’ estimates already. However, in a sense, it already is, since analysts expect to see large growth, especially if the Postal Service contract comes through.
For example, four months earlier Workhorse had signed a technology agreement with Hitachi America and Hitachi Capital America Corp. to help fuel its growth.
However, nothing will compare with the effect that winning the Postal Service contract will have, since it is so large at $6.3 billion. There is still no word as to when the government will make that decision.
Based on analysts’ estimates today, WKHS stock trades for 20.7x sales for 2021. More importantly, the company is still forecast to lose money this year.
In fact, analysts don’t expect meaningful profits until 2023 when it could make 32 cents per share. That still makes it worth 74x earnings for 2023. It is not until 2025, with a forecast EPS of $2.21, that the stock has a reasonable valuation.
However, that puts it at 10.75x earnings but for five years in the future. That implies a high degree of variance, risk and it will likely be subject to change. In short, WKHS stock is clearly fully valued.
What To Do With WKHS Stock
I am not the only one who thinks WKHS stock is trading too high. Analysts who cover the stock have valuations below today’s price. MarketBeat shows that their average target is $19.57 per share from eight analysts. Workhorse is trading today at just under $23.
Moreover, five analysts surveyed by TipRanks.com have an average price target of just $24 per share. And six analysts surveyed by Yahoo! Finance have a consensus price target of $25. This is just 5% above today’s price.
Barron’s noted that the Pride Group order seems to be for substantially more trucks than its own fleet. In other words, they will be a reseller. The magazine also noted that the contract is “subject to various production and delivery conditions.” That could be one reason why analysts are still somewhat hesitant to raise their earnings and price targets.
Therefore, given that WKHS stock looks overvalued, it might be best to wait on seeing how its earnings turn out over the next several quarters.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake runs the Total Yield Value Guide which you can review here.
