A thorn in the side of longs continues to be Hindenburg Research. Whenever a hot stock starts climbing, Hindenburg goes short and then they come out with their usual hit piece – XYZ stock is a fraud, going to zero, and here’s our report. XYZ stock drops. Hindenburg covers. Rinse and repeat. Hindenburg has recently done this with Sorrento Therapeutics, Genius Brands, IDEX Stock, and now Workhorse Group Stock.
We're short $WKHS because we think there's immediate 50% downside. The company has an astronomical valuation of ~$1.5B despite less than $100k in revenue last quarter.
We see the chance of winning a material USPS contract as virtually zero. A reality check is on its way.
— Hindenburg Research (@HindenburgRes) July 10, 2020
As you can see from the chart, the intended effect is already happening. Workhorse Group stock dropped over 5% on Friday after Hindenburg tweeted.
We believe this has created a discount entry opportunity in Workhorse Group stock. Taking a closer look, there are many catalysts that can drive the stock to new highs and squeeze the shorts like Hindenburg, especially now that 33% of the float is short.
About Workhorse Group Stock
First up, here’s a little background info for those that aren’t familiar with Workhorse Group stock. Workhorse is a technology company focused on providing electric vehicles to the last-mile delivery sector. As an American original equipment manufacturer, the company designs and builds high performance, battery-electric vehicles including trucks and aircraft.
Workhorse also develops cloud-based, real-time telematics performance monitoring systems that are fully integrated with its vehicles and enable fleet operators to optimize energy and route efficiency. All Workhorse vehicles are designed to make the movement of people and goods more efficient and less harmful to the environment. Workhorse has seven patents already granted and four pending.
Workhorse Group Delivery Vans
Workhorse is focused solely on last-mile delivery, a niche the company calls an $18 billion market opportunity and where it has first-mover advantage. The company just successfully completed the Federal Motor Vehicle Safety Standards (FMVSS) testing for its C650 and C1000 all-electric delivery vans. CEO Duane Hughes said:
“The successful completion of our FMVSS testing confirms that the design, construction, performance, and durability of our all-electric 650 and 1000 cubic foot C-Series delivery vans meet federal requirements, making Workhorse the only American all-electric OEM designing and manufacturing last-mile delivery vehicles to complete this testing. With this late-stage milestone certification now behind us, we remain well-positioned to execute on our production timeline for the remainder of the year.”
Huge Addressable Market
Workhorse can now commence production of the C-Series trucks, which should increase visibility for executing the backlog of orders from United Parcel Service, Inc. (NYSE: UPS) of 1,060 units. Workhorse Group could achieve C-Series production of 150 units in 2020 and 2,000 units in 2021, with EBITDA profitability by the end of 2021.
Workhorse is also well-positioned for the potential contract from the U.S. Postal Service for its Next Generation Delivery Vehicle, which could be for as many as 180,000 vehicles, especially after completing the Federal Motor Vehicle Safety Standards (FMVSS) testing for its C650 and C1000 all-electric delivery vans. Workhorse Group is the only American all-electric OEM designing and manufacturing last-mile delivery vehicles to complete this testing.
Driving a large part of the excitement surrounding Workhorse Group this week is its 10% stake in Lordstown Motors. Vice President Mike Pence attended the June 25th unveiling of the all-new Lordstown Endurance pick-up truck, which will compete with Telsa’s Cybertruck and Nikola’s Badger. The Lordstown Endurance is expected to be delivered to fleet customers at the beginning of 2021, with the first consumers getting their trucks in late 2021. Workhorse will receive a royalty on all of the electric pickups delivered by Lordstown.
Horsefly Drone Division
Besides the electric delivery vans, Workhorse Group has its Horsefly Drone program. The HorseFly was designed to deliver what represents approximately 80% of most commercial package sizes, shapes, and weights while safely carrying a five-pound payload up to 10 miles. The HorseFly system’s success has been demonstrated through real-world commercial deliveries, flying autonomously from truck-top operations in U.S. airspace, in a process that meets all FAA flight standards.
$70 Million Financing
Last month, Workhorse Group entered into a financing agreement for a $70 million Senior Secured Convertible Note with a single institutional investor. The proceeds will be used for current operating working capital and other general corporate purposes.
The note is convertible into common stock by the investor at $19.00 per share, or 131% of the closing price of Workhorse’s common stock on June 29, 2020. The Note matures on July 1, 2023, and contains a 4.5% annualized coupon to be paid quarterly in either cash or stock beginning October 1, 2020. In addition, Workhorse may be required to redeem up to $3.5 million of principal in monthly installments in either cash or stock beginning October 1, 2020. Workhorse CEO Duane Hughes said:
“With this note in place, we have much greater financial flexibility to support our current and future production needs. Heading into the second half of the year, we’ll be looking to meet our previously stated annual delivery target, which should have us in a strong position to accelerate our production ramp into 2021. Successful vehicle production and delivery should also lead to additional orders as we demonstrate our ability to meet our current demand and provide road-ready last-mile delivery EVs.”
Everything is in place for Workhorse Group stock to keep making new highs. The company has the technology, its stake in Lordstown Motors, and the working capital to go into production. Right now, its current market cap of $1 billion is just a conservative estimate of its stake in Lordstown Motors. The Lordstown Endurance will be on the road next year, before Telsa’s Cybertruck and Nikola’s Badger. For those looking at what the future holds for Workhorse Group stock, the reality is that Hindenburg is providing an opportunity to load up on the dip before the bull run continues.
As always, good luck to all (except the shorts)!
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Disclosure: We have no position in NASDAQ:WKHS or any of the securities mentioned. We wrote this article ourselves and it expresses our own opinions. We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article.
Image courtesy of Detroit News