Electric vehicle (EV) and drone system manufacturer Workhorse Group, Inc.’s (WKHS - Get Rating) shares soared and hit an all-time high of $42.96 on February 4, 2021 because  investors expected it to receive a contract from the United States Postal Service (USPS) to help electrify its fleet of delivery vehicles. However, Oshkosh Corporation (OSK) won the bid for the contracts, and WKHS’ shares fell sharply.

The stock has lost 41.1% so far this year and is currently trading 72.9% below its high. The company is also facing increasing competition from its peers and has supply chain issues. Its CEO Duane Hughes stated that, “We are currently faced with various supply chain challenges, both internal and external, in the ramp up to our stretch production goal for 2021.”

As the demand for EVs continues to increase, the sector is space is becoming overcrowded with several companies vying for market share. So, WKHS is facing stiff competition not only from established companies, such as Ford Motor Company (F), General Motors Company (GM), and Tesla, Inc. (TSLA), but also from new companies. While F, GM and TSLA have gained 60.6%, 79.8% and 64.6% over the past six months, WKHS has lost 47.8%.

Click here to checkout our Electric Vehicle Industry Report for 2021

Here’s what we think could shape WKHS’ performance in the near term:

Class Action Lawsuit Against WKHS

Several law firms reminded WKHS’ shareholders who purchased the company’s securities between July 7, 2020 and February 23, 2021to file lead plaintiff applications in a securities class action lawsuit against the company.

Plaintiffs  allege that WKHS made materially false and/or misleading statements, and/or failed to disclose that it was merely hoping that USPS was going to select an EV as its Next Generation Delivery Vehicle (NGDV) and had no assurance or indication from USPS that this was the case, among other facts. If true, this would be  in violation of 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by the U.S. Securities and Exchange Commission.

Stretched Valuation

In terms of forward price/sales ratio, WKHS’ 12.80x is 848.1% higher than the industry average of 1.35x. In terms of forward EV/S ratio, the stock’s 15.18x is 798.2% higher than the industry average of 1.69x. Also, its forward price-to-book ratio of 4.31x is higher than the industry average of 3.65x.

POWR Ratings Reflect Bleak Outlook

WKHS has an F overall rating, which equates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. WKHS has a F grade for Growth, which is in sync with analysts’ expectations that its EPS will decline 383.3% for the quarter ended March 31, 2021 and 182.9% in fiscal 2021.

The stock has a D grade for Value, consistent with its higher-than-industry valuation ratios.

It also has a F grade for Quality. This is no surprise as its gross profit margin is negative 838.4%.

WKHS is ranked #52 of 53 stocks in the B-rated Auto & Vehicle Manufacturers industry. Click here to access WKHS’ ratings for Stability, Sentiment, and Momentum as well.

Better than WKHS: Click here to access 21 top-rated stocks in the same industry.

Bottom Line

The demand for EVs is increasing but so is the number of companies in the EV space. So, WKHS is facing stiff competition. The stock plunged in February  on the news of the comp[any’s loss in its bid for a USPS contract  and it has been on a downward slide since. The company’s EPS is also expected to remain negative in its fiscal year 2021. So, we think it’s best to avoid the stock now.

Click here to checkout our Electric Vehicle Industry Report for 2021

WKHS shares were trading at $13.28 per share on Friday afternoon, up $1.63 (+13.99%). Year-to-date, WKHS has declined -32.86%, versus a 11.78% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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