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What is Going On With Workhorse Group?

GuruFocus.com

Workhorse Group (NASDAQ:WKHS) appears to be one of Wall Street's darlings in today's market. With the management's confirmation of vehicle production delivery by the end of this year and the successful completion of a Federal Vehicle Standard test, the Loveland, Ohio-based medium-duty electric truck designer saw its valuation catapult to a more than a billion dollars in just a few weeks.


Four months ago, Workhorse Group reported its fiscal year 2019 numbers. The electric vehicle and drone maker's sales for the past year dropped by a whopping 50% because of lower volume sales, while its bottom line remained in the red brought on by its heavy debt. As of that time, Workhorse had built and delivered approximately 360 electric medium-duty delivery trucks and projected to deliver another 300-400 vehicles by end of 2020.


Workhorse Group's fortune seemed to turn around in late June when it completed the Federal Motor Vehicle Safety Standards testing for its C650 and C1000 all-electric delivery vans. The company took the positive results and stated that it will ramp up its production to meet its goals of production numbers this year. The market reacted wildly as it pushed the company's stock 44% higher.


The Ohio-based company has unique technology in its products. Its HorseFly(TM) Unmanned Aerial System allows the company to have a drone deliver common commercial packages while safely carrying a five-pound payload up to 10 miles, all while meeting Federal Aviation Administration (FAA) flight standards. Its recently showcased electric delivery trucks have an expected range between 100 and 150 miles on a single charge, while achieving approximately 53 miles per gallon gasoline equivalent (MPGe).


The electric truck maker has about 1,100 pending orders from customers that includes UPS, FedEx Express, Alpha Baking, W.B. Mason and Ryder. Workhorse Group also remains one of the four participants bidding for U.S. Postal Service's $6 billion contract for its next-generation mail truck fleet.


The market volatility has remained high amidst the pandemic, but nothing seems to have perturbed Workhorse's stock price, which is up 1,490% from its one-year low. Now trading at 14,012 times its sales, the pressure for Workhorse Group to win the USPS bidding could not be much greater, and the bidding deadline has been moved from March 27 to July 14. In my view, the contract could be a "make or break" point for the overvalued stock.

Disclosure: No shares in any of the companies mentioned.

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This article first appeared on GuruFocus.