The EV bubble in general may be taking a breather. But, that’s not the case with Workhorse (NASDAQ:WKHS). Shares in the budding electric truck maker have continued to soar, with WKHS stock up more than 75% in the past month.
And, that’s no surprise. Between the potential for the company to win a lucrative contract with the U.S. Postal Service (USPS), along with its exposure to Lordstown Motors, it’s clear why investors have continued to bid the stock higher. Yet, following this epic run-up, do shares remain a buy?
It depends. On one hand, if both catalysts work out, expect WKHS stock to soar even further. Even as the exuberance sending other EV plays like Tesla (NASDAQ:TSLA) and Nikola (NASDAQ:NKLA) has cooled off. In fact, investors who saw big gains with both these names may be parlaying their profits into this stock.
On the other hand, with shares “priced for perfection,” Workhorse could sink back to prior price levels if things fall short. That could either come from the company not securing even a piece of the USPS deal. It could also happen if Lordstown stumbles after it goes public.
So, what’s the play here? If you bought in at lower price, you may want to let it ride. But, if you are just considering a position today, it’s best to play it cool for now.
WKHS Stock and the Post Office Catalyst
The Lordstown catalyst may be getting more attention right now. But, it’s the USPS catalyst that could make or break Workhorse. As I previously discussed, the company is the dark horse contender for the NGDV, or Next Generation Delivery Vehicle contract.
What’s that? That’s the Post Office’s large-scale replacement of its aging mail truck fleet. Although not the favorite, even getting a piece of the $6 billion pie would be a massive win for Workhorse.
Yet, the potential for WKHS stock goes beyond both of these factors. Earlier this month, Oppenheimer analyst Colin Rusch initiated coverage, giving shares the equivalent to a “buy” rating.
His rationale? Beyond the aforementioned catalysts, Rusch views Workhorse “the leading EV last-mile delivery truck platform,” given its “critical design and operating system advantages.” The analyst is also bullish on the company’s prospects in the drone delivery space.
In short, this stock isn’t just a binary bet on the company success with either the USPS contract, or with its interest in Lordstown. But, in the near-term, its stake in the soon-to-be-public electric truck maker will be what moves shares higher (or lower).
Lordstown Exposure Could Mean More Runway
As InvestorPlace’s Faisal Humayun wrote Sept. 16, while shares have climbed nearly ten-fold in six months, shares may still be cheap due to the company’s 10% stake in Lordstown Motors (LMC).
Here’s the situation: privately-held LMC is merging with public SPAC (special purpose acquisition company) DiamondPeak Holdings (NASDAQ:DPHC). And, given the recent run-up in that blank-check company’s shares, Workhorse’s stake could wind up being worth a significant part of its current market capitalization.
But, the Lordstown exposure goes beyond just unlocking the value of this “hidden asset.” In exchange for licensing its electric pickup intellectual property, Workhorse received not just an equity stake, but future licensing fees as well.
So far, LMC has received more than 27,000 pre-orders for its flagship Endurance EV work truck. Once delivered, these pre-orders could mean over $1.4 billion in revenue. But the potential royalties from these pre-orders is just the start. Given the licensing deal gives Workhorse 1% of Lordstown’s revenue up to the first 200,000 vehicles sold, the company could earn over $100 million.
Granted, for a stock with a $2.8 billion market capitalization, $100 million isn’t much of a needle-mover. But, consider these proceeds icing on the cake. It’s $100 million more that Workhorse can but back into growing its EV semi truck business.
Keep It, but Don’t Buy Now
Put it all together, and WKHS stock looks like a slam-dunk opportunity. Or is it? The stock has plenty in its favor, but its important to note the plenty of concerns at play as well.
InvestorPlace’s Thomas Yeung recently detailed the many red flags inherent with both Workhorse and Lordstown. Yet, while these factors could hurt both companies in the long-term, for now the Lordstown “story” will help shares in the near-term.
What does that mean for investors? If you bought WKHS stock at lower prices, let it ride, as shares could continue to climb. But, if you have yet to enter a position, it may pay to take a “wait and see” approach.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Thomas Niel, contributor to InvestorPlace, has written single stock analysis since 2016.