Ohio-based electric vehicle company Workhorse Group (NASDAQ:WKHS) is expected to report earnings in early August. Year-to-date, WKHS stock is up more than 400%, climbing to $16 per share. But that metric tells only half the story.
In mid-March, the shares hit a 52-week low of $1.32. If you were brave enough to invest $1,000 in the business in early spring, you’d now have close to $12,000.
Investors are wondering whether Workhouse can possibly become the next Tesla (NASDAQ:TSLA). After all, the electric vehicle industry has been one of the top performing ones this year.
Therefore today, I’ll take a closer look at what investors can expect from the company in the coming months. You may consider investing in WKHS stock if there is short-term profit-taking and the price declines to $12.50 or even below.
What to Expect from Q2 Earnings
Workhorse Group manufactures electrically powered delivery and utility vehicles, serving especially the last-mile delivery sector. Its history goes back to 2007 when it was established as AMP Electric Vehicles. In March 2015, the company took over Workhorse Custom Chassis, changing the company name to Workhorse Group, and began offering a range of electrically powered delivery vans.
First-quarter earnings released in May showed sales for the quarter of $84,000, compared with $364,000 in the first quarter of 2019. The decrease in sales was primarily due to a decrease in the volume of trucks shipped. As of March 31, the company had cash and cash equivalents of $16.8 million compared to $23.9 million as of Dec. 31, 2019.
The earnings results showed that Workhouse will produce 300 to 400 delivery vehicles by the end 2020.
In late June, the company agreed terms to raise $70 million from an institutional investor through a new bond. CEO Duane Hughes commented:
“With this note in place, we have much greater financial flexibility to support our current and future production needs. Heading into the second half of the year, we’ll be looking to meet our previously stated annual delivery target, which should have us in a strong position to accelerate our production ramp into 2021.”
Workhouse has recently received an order for 1,000 delivery vehicles from Cincinnati-based, newly launched trucking company, eTrucks.
What Could Derail WKHS Stock?
Recent price increases in the EV sector pushed valuations of companies to extremely high levels. Within the past year, Workhouse shares have traded within a range of $1.31-$22.90. Therefore, in case of profit-taking in broader markets or the EV sector, WKHS stock is likely to take a breather as well.
WKHS stock has a beta of over 2.5. That is a high number, showing market participants how risky Workhouse Group is compared to most other stocks. As a rule of thumb, high beta stocks typically gain in bull markets. But when markets go down, these highly volatile stocks can turn around in a hurry and give up gains fast, too.
It’s important to remember that Workhouse is a momentum stock. Long-term investors would like to see the stock go and stay over $20. Yet short-term traders will likely keep it between $15 and $12.50 or even $10.
In case of a drop in price, I’d suggest that long-term investors wait until WKHS stock builds a base between $10 and $12.50. Any move toward $10 would likely make the stock attractive for many investors.
On the other hand, if the recent rally in the markets continue August, too, then WKHS stock could easily move over $20. Then the technical charts would need to be reevaluated.
The Bottom Line
Over the past several years, consumers and investors have been increasingly watching the EV space. We can expect to hear more on shares of publicly quoted EV companies like WKHS.
However, Workhouse Group is not yet an established EV firm with considerable sales. Hence, it is not profitable, either. Therefore, it is still a speculative investment.
Early investors may want to take some money off the table now. Those who already own the stock may also consider hedging their positions with monthly at-the-money (ATM) covered calls. Then, investors can benefit from a rally by WKHS stock in the wake of the Q2 results. At the same, they’d have some protection from subsequent profit-taking.
Meanwhile, in the long run, Workhouse Group may find itself an acquisition target, which would likely create exceptional value for shareholders.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, including a Ph.D. degree, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan did not hold a position in any of the aforementioned securities.