Workhorse Group (NASDAQ:WKHS) stock has moved up dramatically in the last year, soaring almost 600%. In fact, WHKS stock is up 665% in 2020 and has even fallen about 10% from its peak. But there are rising concerns about the stock having rallied too far and too fast.
Since my last article on WKHS stock, “Workhorse Stock Is on Track to Be an EV Winner,” which was published on Sept. 9, the stock is up slightly. At the time I argued that it was worth considerably more than its stock price.
When my first bullish article on the stock was published on Aug. 19, the company’s stock price was $16.89. Since then, WKHS stock has risen more than 50% to $26.63.
Doubts on Workhorse’s Valuation
But now I am starting to have doubts. The stock has moved up so fast, it seems to incorporate all of the good news about the company. Moreover, Workhorse is still not profitable.
I am not saying that the shares will not rally if the company wins the U.S. Postal Service contract. The winner of that contract should be disclosed very soon. But the stock seems to reflect a win of that contract by Workhorse already.
Watch out below if Workhorse does not win that contract. But this company is not a hyped-up, hot-air stock like Nikola (NASDAQ:NKLA); Workhorse is making real products and making real deals.
For example, since my first article, the automaker signed a strategic agreement on Aug. 31 with Hitachi America, and Hitachi Capital America.
But the problem is the shares’ valuation. WKHS stock has a market capitalization of $2.33 billion. As one Seeking Alpha author, Jeff Vande Hey, pointed out, the average price target of six analysts who cover the stock is well below today’s price. MarketBeat shows that their average target is $17.17 per share. That is over 33% below today’s price.
Moreover, Vande Hey‘s article points out that, if the shares were trading at 20 times Workhorse’s expected earnings five years from now, they would be worth worth just $14.00, over $10 below today’s price. Based on a scenario in which Workhorse’s earnings in five years exceed the average outlook, the author’s target is $30.47 per share or 14% higher than today’s price.
So his price target is between $14 and $30.47, whereas the present price is at $26.90, closer to the upper portion of the range. Obviously, that means that the stock already reflects most optimistic scenarios.
What’s Next for WKHS Stock
As I wrote in my last article, Barron’s believes WKHS stock is becoming a Wall Street favorite. Four of the five analysts covering the stock have a “buy” rating or the equivalent rating on the shares.
The outcome of the U.S. Post Office contract will determine the short-term fate of the stock. That is because the market is hoping that the firm will receive all or a portion of that contract.
One or multiple bidders could win the 200,000-truck deal which will be worth up to $6 billion. According to Benzinga, Workhorse’s CFO believes that it is the only viable EV bidder.
In my original article on WKHS stock using probability analysis and a sum-of-the-parts valuation. I estimated that the shares were worth $2.5 billion or $23.71 per share.
But the problem is that the shares are now above that price. It’s also questionable whether Workhorse can win the USPS contract.
And WKHS stock trades at a huge valuation. Seeking Alpha says that its price-sales ratio is 123 times its expected 2020 sales and 18 times its expected 2021 sales.
Those are extremely high P/S ratios, so something is off with the shares.
Therefore, I suspect that most risk-averse investors will shy away from WKHS stock until its valuation becomes more reasonable.
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.