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With A Lot of Sizzle, and Little Steak, Avoid Workhorse Stock

The rising tide of the “EV Bubble” has lifted many boats, including Workhorse (NASDAQ:WKHS) stock. Shares in the electric vehicle producer are up nearly 500% year-to-date. But, don’t chalk up these gains to only the EV pandemonium driven by investors’ love for Tesla (NASDAQ:TSLA). Two key catalysts, either of which could send this development-stage company into hyperdrive, have been a played a role as well.

WKHS Stock
Source: rblfmr / Shutterstock.com

I’m talking about the company’s Post Office and Lordstown Motors catalysts. Yet, while positive news from either one would put points in the stock, there is a major caveat. Neither catalyst is a slam dunk for the company.

With regards to the Post Office catalyst, the company’s chances of winning a piece of this lucrative contract remain slim. Not only that, it’s debatable whether a win would pay off financially.

Regarding the second catalyst, it all boils down to how Lordstown’s shares perform after its merger with a SPAC. Post-merger, Workhorse’s stake could be worth many times what its assessed for now. But all bets are off whether Lordstown stock will go parabolic like Tesla, Nio (NYSE:NIO), and Nikola (NASDAQ:NKLA) have in recent months.

With these factors in mind, the easy money has already been made with this EV play. At today’s prices, the risk/return is not in your favor.

Post Office Catalyst is a Long-Shot That May Not Pay Off for WKHS Stock

Much of the excitement for this stock has been due to the company’s post office catalyst. That is to say, its bid for the U.S. Postal Service’s (USPS) vehicle contract. The post office is looking to bring its fleet into the 21st century, after it selects a manufacturer to build its Next Generation Delivery Vehicle (NGDV).

Workhorse is a bit of the dark horse contender here, given the remaining rival bidding teams (Oshkosh (NYSE:OSK)/Ford (NYSE:F); AM General, Karsan/Morgan Olson) have greater scale and manufacturing experience. Yet, given the USPS could split the contract among multiple bidders, and this company having the sole electric-only contender, it could wind up with a piece of the action.

But, as InvestorPlace’s Laura Hoy wrote Aug 31, it’s debatable whether the company would even profit if it wins. The battery alone may cost as much as the sticker price for the entire finished product.

Granted, there are merits for this deal being a loss leader for Workhorse. The social proof from winning the contract could help boost its commercial market sales. However, that’s a big gamble, and could more be than it can chew.

In short, don’t buy WKHS stock as a lottery ticket on the USPS contract, which will be announced later this year.

Other Catalysts Likely Priced-In as Well

After rallying from around $2 per share in late March, to around $18 per share today, much of the upside potential for Workhorse has gotten priced into shares. And not just the potential from the USPS deal.

As I wrote earlier this month, the company has big involvement with Lordstown Motors. Workhorse owns 10% of the separate company, run by its former CEO. It also swapped its electric pickup truck intellectual property in exchange for future licensing fees.

Once privately-held Lordstown merges with SPAC (special purpose acquisition company) DiamondPeak (NASDAQ:DPHC), this stake (now worth $160 million) could be worth many times more, given how well SPAC stocks have performed as of late.

Yet, there are no guarantees. The bubble in SPAC stocks could soon take a breather.  So could the enthusiasm for EV stocks. Also, what about the underlying prospects of Lordstown? Its debatable whether its electric truck can take on the competition from Tesla and Nikola.

Sure, the company has other coals in the fire, like its line of HorseFly drones. Yet, as Barron’s reported Aug 28, the company has a long way to go before this product line is ready for prime time. In short, while there’s a lot potential here, these varied catalysts are likely already factored into the current WKHS stock price.

The Ship’s Already Sailed, So Avoid Workhorse For Now

On paper, this budding EV maker sounds like a solid prospect. Between its potential to win the USPS contract, and its interest in Lordstown Motors, there are plenty of near-term catalysts at play. And, with recent news of the company partnering with Hitachi (OTCMKTS:HTHIY), prospects look even brighter.

Emphasis on the phrase “on paper.” The USPS bid (which may not even pay off if won) is already factored into the share price. So is the Lordstown catalyst, and whatever else the came has up its sleeve. With this in mind, if you own WKHS stock, it’s time to sell into strength. If you don’t own it already, avoid shares completely.

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016.


Article printed from InvestorPlace Media, https://investorplace.com/2020/09/lot-sizzle-little-steak-avoid-wkhs-stock/.

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