It’s hard to justify Workhorse’s (WKHS) current ~$3 billion valuation, considering that the Street expects the company to make less than $150 million in revenues next fiscal year. The major reason why the stock trades so high is due to the fact that the company might win some portion of USPS’s $6.3 billion contract to deliver its EV trucks to the country’s biggest postal service. Other than that, we don’t see any other reason to justify Workhorse’s recent share price appreciation. In addition, the lack of capacity to manufacture trucks at scale on its own is likely going to hurt the company’s margins even if it wins the contract. Considering this, we believe that Workhorse is overvalued.

Lots of Red Flags

By being a pioneer of the EV business, Workhorse worked on various electrification projects with General Motors (GM) and Mercedes for more than a decade and only later decided to sell its own EV vehicles under its brand name. Currently, the company has slightly more than 100 employees and it’s on track to deliver up to 400 C-Series EV trucks by the end of 2020.

Earlier this year, Workhorse benefited from the injection of liquidity to the markets by the Fed, as stocks managed to quickly recover from their March lows and reached new all-time highs shortly thereafter. By being an EV company, Workhorse’s stock followed the upside trend of other stocks like Tesla (TSLA), Nikola (NKLA), and NIO (NIO) and quickly appreciated and reached its own all-time high. In addition, the company was able to keep its momentum by reaching the final stage of the bidding process for USPS’s $6.3 billion contract to manufacture vans for the postal service.

While Workhorse’s growth prospects look good, its financials are not as impressive as some might think. In Q2, Workhorse’s

The onset of COVID-19 and ongoing social distancing efforts does not bode well for apparel retailers such as H&M (OTCPK:HNNMY), which mainly operate across city-center stores. Even with a turnaround effort in place, uncertainties around tighter controls and a stalling footfall recovery into stores make the H&M investment case especially difficult. Yet, at current valuations, the market seems to be factoring in a much quicker recovery from COVID-19 than is likely, and therefore, I think shares could be vulnerable to significant downside revisions in the coming quarters.

Promising September Numbers but Caution is Warranted

From the FQ3 results, I think the better than expected improvement in September trading numbers was perhaps the biggest surprise. The fact that sales only declined c. 5% in local currency terms despite c. 3% of the store base remaining shut was impressive in context, and certainly better than the c. 10% decline consensus was looking for heading into the print. The numbers also compare favorably to peers such as Inditex, which reported early September sales declining at a c. 11% pace.

The September numbers would seem to signal continued improvement ahead, but I would note comps are tough for FQ4 considering prior-year sales were up 8%. Additionally, the recent spike in COVID-19 cases in Europe is also a concern. And finally, I think it’s also worth remembering that FQ3 net sales decreased by 19% Y/Y to SEK 50,870m (-16% in constant currency terms), as a result of the COVID-19 situation. By geography, Russia and Switzerland were the only markets with positive growth, while the largest declines occurred in key markets such as the US, the UK, and in Italy.

Source: H&M Nine-Month Report

Continued Markdowns Weigh on the Gross Margin

As of FQ3, gross margins declined by c. 200bps Y/Y to 48.9%, as markdown-related costs