The electric vehicle space has been supercharged and that has helped to give Workhorse (NASDAQ:WKHS) a big boost. Despite a couple of choppy trading sessions, WKHS stock has hit new all-time highs in back-to-back-back sessions on Sept. 16 through Sept. 18.
Can the stock keep up the momentum?
Maybe not. It doesn’t exactly have the fundamentals or valuation catalysts working in its favor. However, the technicals have been on fire even as the other electric vehicle (EV) stocks have wavered a bit.
Tesla (NASDAQ:TSLA) remains off its high, but still commands a mammoth valuation with a $400 billion market capitalization. Nio (NASDAQ:NIO) continues to trade well too, as the fundamentals and technicals remain aligned.
The one fly in the EV ointment is Nikola (NASDAQ:NKLA). Whenever the word “fraud” starts getting tossed around in conjunction with the SEC and DOJ, it’s never a good look.
Despite that, EV stocks like Workhorse have continued to do well. Let’s look at the main driver right now, which are the charts.
Trading WKHS Stock
Click to Enlarge
After galloping higher in June, WKHS stock topped near $23 and pulled back. However, the dip wasn’t violent, like some traders were expecting. Instead, shares dipped into the teens and chopped sideways for several months. In other words, the stock was consolidating its gains.
In late August, Workhorse finally broke out over downtrend resistance (blue line). That came after $14 support continued to hold, allowing shares to resolve to the upside.
A few days after that breakout, shares found resistance at $21 and pulled back. That led to a test of the 50-day moving average and a retest of downtrend resistance, which acted as support this time around.
This ricocheted shares higher, which has now sent WKHS stock flying to the upside. So just how high can it rally from here?
I would be looking to take some chips off the table at $28.80. There Workhorse finds the 161.8% extension. Above that puts the two-times range extension at $32.44 and the 261.8% extension at $38.34 in play.
Those levels are significantly higher than current prices, but can be achieved if shares begin to squeeze higher.
On the downside, see how the stock does on a dip to the 10-day moving average. A break below this moving average could put $21 in play. Below that and the 50-day moving average could very well become the next stop for Workhorse.
Bottom Line on Workhorse
Are the technicals the only catalyst for Workhorse? No, not necessarily. But I would argue that they are the most powerful catalyst at this moment in time.
At its core, a stock needs demand in order to climb higher. Hype surrounding EV stocks and excitement around SPACs and IPOs doesn’t hurt matters. But right now demand is showing up on the charts and that’s really helping WKHS stock.
While Workhorse’s products may carve out a role in society, I do have trouble parting ways with my cold-hard cash to make an investment in this name. Simply put, the valuation doesn’t work for me.
This stock has a market cap of about $3 billion, while sporting 2019 revenue of $377,000. Yes, thousand, not million.
Granted, analysts expect $21.1 million in sales this year. In 2021, consensus expectations call for $142.6 million in sales. Even based on 2021 sales, we’re talking about 21 times revenue. On this year’s revenue, we’re talking about more than 140 times sales.
In other words, a $3 billion valuation is generous, even if there is strong growth. Admittedly, I wish Workhorse the best. I hope it becomes a powerhouse. But with losses on the books, negative free cash flow and a rich valuation, it’s a pass for me.
It has shown some great relative strength these past few days amid escalating volatility in the market. However, I would not be able to comfortably sleep at night holding this name in my portfolio if we end up in another market-wide decline.
In that case, I would rather avoid the possible headache and buy other stocks on the dip.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
