Climbing more than 470% higher through the first half of 2020, shares of electric vehicle (EV) manufacturer Workhorse Group (NASDAQ:WKHS) ran out of gas in July and sank 11%, according to data from S&P Global Market Intelligence. Besides some bearish views on the stock from Wall Street, investors' enthusiasm tapered off last month as they sensed that the stock's valuation had risen too high.
The first note of concern from the Street came in early July when Michael Shlisky, an analyst at Colliers, downgraded Workhorse Group to neutral from buy, acknowledging concerns that the stock had risen 500% over the past six weeks. Stating his preference to "take a moment to recharge our batteries" before the company reported second quarter earnings, Shlisky also withdrew his $11 price target on the stock, according to Thefly.com.
Soon after Colliers shared its caution, a short-seller revealed its own bearish take. In a tweet, Hindenburg Research expressed considerable doubt that Workhorse Group would win a $6 billion contract to provide EVs to the United States Postal Service (USPS), helping it to update its aging fleet.
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.— Hindenburg Research (@HindenburgRes) July 10, 2020
We see the chance of winning a material USPS contract as virtually zero. A reality check is on its way.
On the day of the tweet, shares closed at $15.18, a 5.5% drop from where they had closed on the prior day.
Lastly, investors likely sold off shares last month after sensing that the fervor for EV stocks had driven up the stock to an unreasonable valuation. News that Workhorse Group received the go-ahead to sell its battery-electric delivery vans, Hyliion announcing its intent to go public, and Lucid Motors providing a date for its unveiling of the Lucid Air are only a few examples of the many EV developments in June that motivated investors to rev their engines and buy shares of EV stocks early in the summer. With shares of Workhorse Group hitting an intraday high of $22.90 on July 2, investors realized that the valuation was running on fumes since the company had only generated sales of $400,000 in 2019 .
While the bearish opinions from Wall Street are worth noting, investors should recognize that analysts often have shorter investing horizons than the multi-year holdings that we prefer. Moreover, it's important to appreciate that Hindenburg Research, a short-seller, stands to profit from a downturn in the stock.
While shares of Workhorse Group tumbled in July, excitement for the stock seems to have returned; it's up more than 6% so far in August due to the news that Lordstown Motors, in which Workhorse Group has a 10% stake, is going public.