Short selling data can help active investors avoid losses. Generally speaking, short sellers are high-conviction traders that do their research. If they are shorting a stock, there’s usually a good reason they are doing so.
In this report, we are going to highlight some bearish short selling activity at Workhorse Group (WKHS:US). Workhorse is an American company that is in the process of developing a range of all-electric delivery trucks and high-efficiency delivery drones that are fully integrated with its electric delivery trucks. It is listed on the NASDAQ Capital Market and currently has a market capitalization of $1.6 billion.
Workhorse Group: Short Selling Activity
Looking at the short selling data on Workhouse Group, we see several red flags. The first is that short interest is very high. Currently, 49.6 million shares are on loan. That represents approximately 45.7% of the company’s free float.
The second red flag is that utilization is very high at 95.4%. Utilization is the number of loaned shares divided by the available shares in the securities lending market, expressed as a percentage. A reading of 95.4% tells us that demand for the stock from short sellers is very high at present.
Workhouse recently posted a disappointing set of first-quarter results. For the quarter, revenue came in at $521,000, well below the consensus estimate of $2.3 billion. Meanwhile, the company generated a net loss of $120.5 million, versus net income of $4.8 million in the same period last year. The big loss was due to a non-cash accounting charge of $136.6 million related to a decline in the market value of its 10% stake in Lordstown Motors. Lordstown, which is also heavily shorted at present, saw its share price fall more than 40% in the first quarter of 2021. Workhorse's stake had been valued at around $330 million at the end of 2020.
During the first quarter, Workhorse delivered a total of just six electric vans to customers due to production delays and supplier issues. As a result, it now expects to deliver just 1,000 of its C-Series vehicles in 2021. That's lower than expected – at the beginning of March, the company advised that it had an order backlog of about 8,000 vehicles.
It’s worth noting that short selling firm Hindenburg Research announced that it was shorting Workhorse stock last year. At the time, Hindenburg said that the chances of Workhorse winning a material USPS contract were “virtually zero” and that the stock had 50% downside.
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.
Putting this all together, we think caution is warranted towards Workhorse stock right now. The high level of short interest suggests that many short sellers expect the stock to fall.