Workhorse stock price: debt-free but dilution risks remain

By:
on May 18, 2023
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  • Workhorse Group shares have been in a freefall for months.
  • The company expects to launch new vehicle models this year.
  • There are elevated risks that the company will raise cash.

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Workhorse Group (NASDAQ: WKHS) stock price has been in a strong bearish trend as concerns about electric vehicle companies continued. The shares dropped to a low of $1.03, the lowest level since May 19th. At its peak, the stock was trading at $43.11, meaning investors have lost billions in the past few years.

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Is Workhorse a good buy?

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Workhorse Group is an American company that manufactures Class 4 to Class 6 commercial electric vehicles. It is a niche company that aims to serve companies in the delivery industry like Fedex and UPS. 

Workhorse published its quarterly results this month. The results revealed that revenue in the first quarter came in at $1.7 million, up from the $14k it made in the same period in 2022. The company’s SG&A revenue jumped to $14.7 million while research costs rose to $7.2 million.

Workhorse Group has over $79 million in cash and short-term investments and is operating without any debt. Instead, the company has primarily raised capital by diluting existing shareholders. It had over 42 million outstanding shares in 2017. Today, the number of shares stand at over 162 million.

I suspect that Workhorse Group will need to raise capital in debt or equity in the near term. In its most recent results, the company said that it was planning to launch several models this year. If this happens, the company will need more money than what it has now. The CFO confirmed this by saying:

“If the opportunity arises and market conditions are appropriate, we will raise additional financing in 2023, including through a continuance of our at the market offering.”

Workhorse stock price forecast

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WKHS chart by TradingView

The daily chart shows that the WKHS stock price has been in a strong bearish trend in the past few months. The stock managed to move below the key support level at $1.41, the lowest level on December 29. 

Further, the shares have moved below the 25-day and 50-day exponential moving averages (EMA). The Relative Strength Index (RSI) has moved slightly below the neutral point. Therefore, the shares will likely continue falling as concerns of more capital raising remain.

However, shorting this penny stock is highly risky at this point since a short squeeze is possible. Buying the stock is also risky because of dilution risks.

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