What happened
Shares of Workhorse Group (WKHS 3.22%) soared by 59.7% last month, according to S&P Global Market Intelligence. The electric delivery van manufacturer greatly outperformed the broader market in March, due in part to news of a new purchase agreement, and also word of some stock-buying by management. It's also possible that the activities of meme stock and momentum traders were responsible for some of that surge.
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So what
On March 1, Workhorse released its fourth-quarter earnings report. The company actually had negative revenue during the period due to a surge in vehicle returns, and it booked a gross loss of $100 million. In 2021, it burned around $140 million in cash. The business is clearly struggling right now.
So why did the stock rise if its financials were so bad? A few reasons. First, Workhorse signed a vehicle purchase agreement with electric bus maker GreenPower Motor on Feb. 28. The deal is a joint manufacturing agreement under which Workhorse will sell the finished electric vehicles. Investors are likely bullish because of what it could mean for Workhorse's revenue over the next few years. Management also released guidance for 2022. The company expects to sell 250 vehicles and book $25 million in revenue this year. That isn't much, but at least it's not negative revenue.
Later in March, CEO Rick Dauch reported that he had purchased another 50,000 Workhorse shares. Insider buys like this are often viewed as bullish indicators, and the stock price shot up after the news became public.
Lastly, Workhorse was a big meme stock back in February 2021. With retail traders jumping back into Gamestop and AMC last month, it is possible that both meme stock and momentum traders decided it was time to hop back into Workhorse, too.
Now what
Workhorse was one of the top-performing stocks last month. But that doesn't mean it's a buy. The company has struggled to gain any sort of traction with its electric vans, and is hemorrhaging money even before it begins its efforts to scale up its manufacturing. Management just signed an at-the-market common stock offering that will allow it to sell $175 million worth of shares, which will further dilute its current shareholders. This tactic shouldn't be surprising. Workhorse's share count has ballooned from 4 million back in 2013 to 151 million today.
It is impossible to value Workhorse based on its trailing financials because it has no revenue. But even if it hits its $25 million sales target for 2022, that would still give it a forward price-to-sales ratio of 32. Most carmakers trade at price-to-sales ratios below 1. And that figure comes before factoring in the company's upcoming share count growth.
Given this company's already high valuation, its plans for further shareholder dilution, and its history of burning loads of cash, investors should stay far away from Workhorse stock, no matter what insiders are doing.
