The electric vehicle (EV) industry has been on a wild ride in the past year. The Global X Autonomous & Electric Vehicles ETF (DRIV) is up more than 120% in the past year. Year-to-date it’s up more than 15%.
However, Workhorse Group (WKHS) and Lordstown Motors (RIDE), two EV players focusing on electric commercial fleets in the U.S., have experienced significant losses YTD.
Now could be a time to scoop up shares in these stocks at a cheaper price. So today we’re going to analyze which stock is a better buy.
WKHS is a company focused on designing and building high-performance electric vehicles and drones. The stock reached an all-time high at $42.96 per share in February, but has lost 35% YTD.
The significant correction selloff you see in the chart was a result of its losing a multi-billion USPS contract to competitor Oshkosh. This failure to secure this massive contract has resulted in a class action lawsuit due to alleged false and/or misleading public statements released by the company.
However, WKHS is pushing forward. The company increased its backlog to over 8,000 vehicles in January 2021, following the purchase orders of 6,320 C-Series vehicles from Pride Group Enterprises and 500 C-1000 trucks from Pritchard Companies. Besides, with its HorseFly drone, a custom-designed Unmanned Aerial System (UAS) integrated into its electric vans, WKHS has a differentiating product designed to facilitate last-mile deliveries.
The company has yet to deliver these vehicles and has production capacity challenges, with only 3 vehicles produced per day. WKHS has said it is expecting to ramp it up to 10 trucks per day by the end of the 2Q2021.
In terms of financials, the company is still cash flow negative, losing $70.3 million from its operating activities in the fiscal year 2020. In March, WKHS announced a cash position of $215 million, after raising $270 million in capital. With that, the management expects now to be well-capitalized to expand its manufacturing throughput and to reliably execute its multi-year growth plan.
Looking at WKHS’ valuation, the EV manufacturer has an estimated 2021 price-to-book ratio (P/B) value of 4.81x, and a 2021 EV/Revenue of 14.5x, which is still expensive despite the steep share depreciation observed since the beginning of the year.
Lordstown Motors (RIDE)
RIDE is an EV company, focused on building and designing light-duty electric trucks targeted for commercial fleets. RIDE’s star product is the “Endurance” pickup truck, which already received 100,000 pre-orders, the company’s news release shows. Nevertheless, RIDE’s stock price tanked 49% YTD.
This selloff was in large part due to short seller Hindenburg Research accusing the company’s sales announcements and questioning its development stage.
At the moment, RIDE’s financials are not attractive. With a net loss of $101 million in 2020 and first truck deliveries expected to come out by September 2021, the company is lagging significantly to its competitors.
Besides, the company expects to invest $450 million in 2021 to meet its growing demand for its Endurance truck and build a factory with an estimated capacity of 60,000 vehicles per year. While these announcements might seem positive at first sight, the company is still in the phase of designing its vehicles, and even if RIDE had $630 million cash and cash equivalents at the end of 2020, it still needs a lot of capital to bring its first vehicle on the market and turn a profit.
With that being said, I believe there is a high probability that the company will raise additional debt or dilute its current shareholders as the company increases production rates.
In terms of valuation, the company remains overvalued compared to industry peers. RIDE is currently trading at an estimated 2021 P/B ratio of 3.63x and an expected 2021 EV/Revenue of 17.8x.
While both companies are operating in a fast-growing market, investing in either remains speculative. That being said, I favor WKHS over RIDE.
WKHS is closer to bringing its products to market, whereas RIDE is still in the design and beta stage of testing its Endurance vehicle. WKHS has a comfortable and more qualitative backlog than RIDE and it differentiates from other EV competitors with its HorseFly drone. Finally, something investors might not know is that WKHS owns a 10% stake in RIDE, giving WKHS shareholders exposure, albeit small, to RIDE.
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WKHS shares were trading at $13.06 per share on Wednesday afternoon, up $0.06 (+0.46%). Year-to-date, WKHS has declined -33.97%, versus a 12.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Cristian Docan
Cristian is an experienced investment analyst and financial writer. Prior to StockNews.com, Cristian spent three years as a consultant providing investment research and content to financial services companies and online publications on the Oil & Gas sector. Cristian enjoys researching and writing about stocks and the markets. He takes a fundamental, technical and quantitative approach in evaluating stocks for readers. More...
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