Please ensure Javascript is enabled for purposes of website accessibility

Why Workhorse Group Stock Dropped 10% in April

By Howard Smith - May 6, 2021 at 4:38PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Additional information regarding a big U.S. Post Office contract didn't help Workhorse last month.

What happened

It's been quite an up-and-down year for the stock of electric truck start-up Workhorse Group (WKHS -7.80%). For the month of April, shares dropped 10%, according to data provided by S&P Global Market Intelligence. But that doesn't begin to tell the story for Workhorse stock in 2021. 

So what

The real story for shares of the company started in February when the announcement came that the U.S. Postal Service (USPS) was not awarding Workhorse its highly anticipated 10-year contract to replace its mail delivery fleet with new energy vehicles. Workhorse stock tanked 50% on the news. The stock has drifted down further since then, but not without bumps along the way.

White Workhorse electric delivery van

C-1000 (1,000 cu. ft.) Workhorse delivery van. Image source: Workhorse Group.

Workhorse hasn't provided investors with any updates on its response to the USPS project since early March. With the company's plans to build only 1,800 vehicles in 2021, clearly investors are valuing it around news on that program. And the valuation prior to the USPS announcement was pretty exceptional. Prior to the big drop, the company's market cap approached $5 billion. That's with 2020 sales of just $1.4 million. 

Now what

Workhorse pushed back on the contract decision. Some politicians are also asking for an investigation into the process and award, including Ohio Rep. Tim Ryan, who represents the Ohio district containing electric vehicle maker Lordstown Motors (RIDE -9.80%) in which Workhorse owns a 10% stake. 

One area of contention is Workhorse claiming the contract winner, Wisconsin truck maker Oshkosh (OSK -0.99%), does not have the capacity to provide all-battery electric vehicles (BEVs) for the contract, and fuel-efficient, low emission fossil fuel-powered vehicles would make up too much of the mix. But Oshkosh squashed that thought in its quarterly financial release on April 28, saying that it offers the "option of delivering any combination, up to 100 percent of either model. Our vehicle design also provides the USPS with the flexibility to convert ICE units to BEV in the future." The contract to build up to 165,000 vehicles is potentially worth billions of dollars.

That statement hasn't helped Workhorse's case. And shares have continued to fall in the first week of May. If all hope of participation in the USPS contract is lost, investors shouldn't expect a reversal in the stock until the valuation gets more in line with the business Workhorse has on the books, and there is more visibility into how sales will grow

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Workhorse Group Inc. Stock Quote
Workhorse Group Inc.
WKHS
$3.43 (-7.80%) $0.29
Oshkosh Corporation Stock Quote
Oshkosh Corporation
OSK
$84.97 (-0.99%) $0.85
Lordstown Motors Corp. Stock Quote
Lordstown Motors Corp.
RIDE
$2.21 (-9.80%) $0.24

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
397%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.