Apparently, there’s some kind of profit window that “slams shut” on September 30th, according to Christian DeHaemer, and you have to buy this $3 “disruptive technology” stock before then. So what the heck is he talking about?
The pitch is for Crisis and Opportunity (now being sold at $1,599/year), and it’s all about drones. DeHaemer notes that there will soon be “countless drones” performing missions all around the country, and that “they’re about to wreak havoc on a $246 billion industry.”
That’s a stiff price to pay just to find out about a “secret” stock, and if you pay $1,599 you’re probably going to be inclined to swallow the whole lure and believe the story with perhaps a bit too much ardor… so let’s see if we can name the stock for you, give you a chance to think about it for yourself a bit. Then, if you want, feel free to subscribe to DeHaemer’s newsletter with a fresh and clear mind, free of the cloud that a lust for 1,000% returns creates in your noggin.
Apparently the reason this little microcap company is favored is that the FAA is slowing down bigger companies… here’s a bit from the ad:
“Google, Amazon, and Wal-Mart want in on the action. But the Federal Aviation Administration (FAA) is in the way.
“The problem: The agency has a little-known rule that prevents these Fortune 500 companies from cashing in on the upcoming disruption.
“Right now, they’re working night and day to get the FAA to roll back its rule.
“But you know how government agencies work… SLOWLY.
“So, while these multibillion-dollar corporations are wallowing in red tape, one microcap is quietly gaining first mover advantage over them.Are you getting our free Daily Update
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“This Company Doesn’t Have to Worry About the FAA’s Rule”
The next bit of clues sounds like an annoying riddle:
“It’s in the trucking business, but it doesn’t haul anything.
“It makes applications for aerospace, but you won’t find its components on any NASA spacecraft.
“And it specializes in a niche market of information technology that’s about to turn a $246 billion industry on its head.”
So what is this $3 stock that DeHaemer thinks will be at $30 by early next year? Let’s see if we have any other clues to work with…
First he tantalizes us with tales of past “disruptors” that turned into 10,000%+ gainers — Apple and Netflix and Amazon, which are all, of course, household names now. Those kinds of comparisons are made all the time, of course, but it’s a heckuva lot easier to pick past disruptors than it is to pick future disruptors — any industry ripe for disruption is, of course, going to have lots of folks trying to grow and change things, not every attempt works and only a teensy weensy percentage of the small companies that are trying to bring a big change actually grow into meaningful industry-leading giants like those three.
So what’s this “$246 billion industry” that the $3 “secret” stock is going to upend? Parcel delivery… so this is a company that’s somehow involved with drones and parcel deliveries.
Other clues? DeHaemer says that this drone company helps delivery firms like UPS or the US Postal Service solve those “last mile” problems — reducing the cost of getting those promised deliveries to the most inefficient rural addresses… here’s more from the ad:
“The Ability to Automate Deliveries to Far-Flung Rural Areas Will Save Companies Like UPS Millions
“In fact, UPS estimates that if every one of its 66,000 drivers were able to shave just a single mile from their route every day, the company would save $50 million annually.
“And that’s why UPS tested this $3 company’s drone technology back in 2016.
“The test was a success, and to say that UPS was thrilled with the results would be an understatement.
“‘What’s exciting is the potential for drones to aid drivers at various points along their routes,’ said Mark Wallace, a senior vice president at UPS. ‘This is a big step toward bolstering efficiency in our network.'”
And the FAA rule that is hinted at in the beginning is the “line of sight” rule — the rule that’s keeping a lid on things by making sure that drone operators always have visual contact with their drones, which apparently means Google and Amazon are out of luck. Here’s more from DeHaemer:
“This system ensures that either the delivery truck’s driver or their assistant will be within the line of sight of the delivery drone.
“Here’s how it works from a technical standpoint:
“The drone launches from the roof of the delivery truck, rises to a cruising altitude, and uses GPS to steer to its destination.
“Once there, the remote pilot guides the release of the package.
“Then, the drone uses infrared tracking to navigate back to the delivery truck where it docks and recharges via the truck’s onboard battery, making it ready for its next mission.”
OK, so that sounds pretty cool, at least. Though I imagine it’s more compelling for delivering small and light parcels (paperback books or phone chargers, not barbells or printers).
What else do we learn about this company? Apparently it also makes gas-electric pickup trucks, and a cloud-based monitoring system for truck fleets. Those pickup trucks apparently are in some demand, he drops hints about orders:
“… customers like Duke Energy, Portland General Electric, the Southern California Power Authority, Clean Power Ohio, and the City of Orlando have preordered over 4,650 of these trucks.
“They’re due to come online in 2018 — a full two years before other truck manufacturers can get their electric trucks to market.”
I have no idea whether that competitor assessment is true, but it is a good clue. And DeHaemer also says that the company has delivery trucks in testing to possibly replace the USPS fleet — it’s apparently one of six bidders who are offering electric trucks with satellite telematics (which offer, we’re told, much lower maintenance costs) for this $6.3 billion contract that will be awarded next year.
Then, just to get to the goofiness, we’re told that this company is going to release a “flying sportscar” for $200,000 in 2019, one that they debuted at the Paris Air show this year — it basically looks like a giant four-copter drone.
So that’s more than enough in the way of clues — what the heck is DeHaemer talking about here?
This is, sez the Thinkolator, the little $100 million Workhorse Group (WKHS), which has actually been around for a while — Workhorse was the name of a chassis supplier for GM and Navistar that has been around for almost 20 years but has changed hands a couple times. Most recently, the Workhorse name and chassis plant were bought in 2015 by a vehicle electrification company called AMP Electric Vehicles (used to be AMPD), and the Workhorse name and ticker change coincided with the company’s shift to developing electric fleet vehicles.
And yes, they have developed not only an electric range-extended step van that they’re testing with UPS, and selling in relatively small quantities, but a drone launching/management system that they call HorseFly that does indeed enable delivery by drone from the roof of a UPS truck. You can see the story (and a video of the operation) here. I suppose that has some advantage over airborne blimp “mother ship” drone systems or warehouse-based drones that have been talked about, at least when it comes to near-term feasibility, but I have no idea whether or not UPS or anyone else will move ahead with meaningful adoption of this just-being-tested technology anytime soon. The HorseFLy sounds like it’s probably a fairly dramatic investment for a relatively marginal return in terms of increased efficiency… though all big changes to business processes sound like that at first, so I guess you’d have to have some faith that this is just the first phase of a revolution.
But that HorseFly is probably not going to be the near-term driver for the company — my guess would be that it’s probably fourth on the list, behind the step van that is their current commercial product (mostly for UPS so far, though they have a couple other preliminary customers), the Postal Service vehicle they’re delivering in prototype form next month, and the light duty W-15 pickup truck that they’re developing based on the R&D that went into their USPS prototype. What Workhorse really builds right now is the custom chassis and electric vehicle drivetrain (and the telematics system, if customers want it), and partners build and customize the rest of the van.
You can see the transcript of the August 9 update conference call from the company here, they do have a meaningful backlog of delivery van orders, mostly for UPS, but they don’t appear to be particularly close to turning this into a profitable enterprise. This is very much an early stage industrial company, and it seems like they need a lot more scale for the electric vehicle chassis business to make sense — that’s no surprise, they talked some about it in their annual update for 2016, but even in their most commercial product they’re effectively selling a $50,000 truck that costs them $100,000 to build (I made those numbers up, but that’s what their best gross profit margin has looked like, and that doesn’t account for SG&A or R&D expenses). It’s not an insoluble problem, much greater volume could go a long way to solving it as they ramp up, get better deals from suppliers, and do the bean counting that every manufacturer has to focus on in relatively low-margin industries like this.
There’s a lot of work and capital that will be required to get them over the hump, and they won’t be generating any profit from these initial 200-vehicle orders (that’s their most important UPS order, being fulfilled now).
Probably the post office truck is the most compelling near-term catalyst — news should be coming in the Spring, either good or bad, they say their prototype will be ready next month and that the USPS will be ready to make a decision after testing the five prototypes from different companies for six months. So perhaps that “urgent” September 30 date is related to expected news flow about their delivery of that prototype to the USPS.
Before we know anything about whether the Postal Service likes the truck, though, they’re likely to have a substantial capital catalyst or two — they either need a big partner or a big capital infusion to get up to scale with their pickup truck design, which they hope to be building by the end of next year, and even without that larger product buildup they need operating capital right now. At their current cash burn rate, they should be in need of capital before they report their next quarter — and they may be raising it now, they do have the current $25 million “whenever” offering sitting with Cowen. Ideally, before they have to raise a much larger chunk of cash than that (which will be fairly soon), they’ll be able to get the kind of cachet that Tesla has, with fleets pre-ordering and consumers lining up to spend $1,000 on a preorder for their (anticipated) $50,000 electric and carbon-fiber pickup truck, and ideally, again like Tesla, investors won’t care about the fact that they’re not profitable and are going to need to raise a lot of money to get up to speed with manufacturing.
I don’t know if it will work or not, but I’d be more comfortable waiting to see what their next financing event is before jumping in — they filed back in June to sell up to $25 million “from time to time” of their authorized $150 million shelf registration, and there will almost certainly be some big hiccups along the way, so I think the odds of this being a rocketship on September 30 are pretty low. Not impossible, of course, but low, at least from my skeptical perspective… and while there is at least one analyst covering the stock who has it at a buy (Cowen, which is the banker that’s also handling that $25 million in equity that might be sold at any time, with a $5 price target), the idea of this being a $30 stock by early next year does seem to be a little silly.
That kind of huge gain would probably require winning that Post Office contract and getting a big capital infusion on good terms, and becoming an investor darling that gets bid up on a junior version of Tesla enthusiasm, which is clearly at least partially their goal (they’d like to be evaluated as a startup technology company that’s making exciting progress in drones and electrificiation, not a capital-intensive manufacturer that’s fighting for orders and bean-counting on costs). Exciting things are possible, of course, particularly with a little $100 million company that is very much a “story” stock, but I’m not particularly eager to buy the stock at $3 right now.
Your mileage may vary, though, as they say, so let us have it — what do you think? Ready for exciting breakthroughs from Workhorse? See other hiccups we should think about? Let us know with a comment below.
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