It’s bucked a grizzly market correction and even galloped to fresh highs, but is Workhorse Group (NASDAQ:WKHS) a good purchase today? Maybe. Let’s see what’s happening off and on the price chart of WKHS stock and offer one risk-adjusted way to position more smartly for the road ahead.
All stocks — and markets for that matter — correct at one point or another. And following a tech-led, record-breaking rally which spawned from March’s short-lived Covid-19 bear market, it’s happening all over again. Maybe. As of Tuesday’s closing bell the Nasdaq Composite had shed just over 10% from its most recent all-time-high less than a handful of days ago. Today has looked a lot better, but can it be sustained?
And notoriously weak seasonality associated with the months of September and October lends a bit more evidence to that possibility that the market is correcting.
There may be other indications the worst of it is still yet to come. Tech heavyweights — so instrumental to the market’s dazzling rally — have seen even worse damage. Apple (NASDAQ:AAPL), the largest company in the world, has tumbled by double digits since the start of September. Microsoft (NASDAQ:MSFT) has lost around 5%. And EV giant Tesla (NASDAQ:TSLA), a favorite among momentum traders during the market’s rally, has crashed 30% and moved firmly into bear territory.
A Bright Spot
The good news is the possibility is arising for new, meaningful leadership to emerge after a healthy setback. The thing is, most corrections don’t lead to broader bear markets. And right now, one company whose shares suggest this alternative reality, rather than a repeat of March, is WKHS stock.
On paper, the EV cargo van and medium- and light-duty pickup truck outfit sounds like a ripe, dime-a-dozen casualty of the market’s correction. But with a “reasonably” small valuation of about $2.4 billion, products in the market, a multi-million-dollar order backlog and UPS (NYSE:UPS) and Germany’s DHL among its customers, Workhorse is differentiating itself within a crowded field.
Workhorse also maintains a well-positioned drone delivery business. It’s another avenue with potential solid promise as “last mile” delivery continues to grow.
That’s not all, though. WKHS has a couple other cards up its sleeve which could prove big wins. A 10% stake in privately-held Lordstown Motors whose Endurance EV truck has been receiving some headlines, is a potential source for royalties. There’s also a chance Workhorse lands a piece of a hefty $6.3 billion next-generation vehicle contract with the US Postal Service.
Shares jumped 8.47% Tuesday to record highs on a sympathy reaction following an announced partnership and equity stake between Nikola and General Motors (NYSE:GM). The agreement appears to bolster the bull case for EVs and other non-fossil fuel driven vehicles. Maybe. No doubt though, right now investors are looking bullishly down the road in WKHS stock with strong-looking conviction.
WKHS Stock Weekly Price Chart
Source: Charts by TradingView
WKHS shares already established a healthy-looking consolidation this summer. Now that setback appears to be a bullish platform for markedly higher stock prices.
From Workhorse’s June all-time high to July’s low, the stock fell 41%. The drop was slightly larger than a more common decline of up to 30% for growth stories of Workhorse’s caliber. However, shares favorably found support off a Fibonacci zone and just above the stock’s former highs from 2016. And with Tuesday’s bid, WKHS staged a breakout from a base which continued to build over August and into September.
So, what’s the next move for investors interested in Workhorse? As bullish as WKHS stock looks, I’d recommend simply monitoring shares for the time being.
Bottom line, seasonality and the current risk-off environment (notwithstanding Wednesday’s oversold bid in the market) make buying leadership like WKHS much riskier than otherwise. A broad-based follow-through day would go a long ways towards being less defensive. For the time being we’re still a couple days or more from even thinking or preferably, seeing that key technical event as a reality and reason for stronger, calculated exposure to Workhorse shares.
On the date of publication, Chris Tyler did not hold, directly or indirectly, positions in any of the securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.