Gradually Accumulate Workhorse Stock For Multi-Fold Returns

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As I write on Workhorse Group (NASDAQ:WKHS) stock, I am reminded of a quote by Victor Hugo that “No force on earth can stop an idea whose time has come.”

Image of a Workhorse (WKHS) logo and drone on the side of a truck.
Source: Photo from WorkHorse.com

Be it the consumer or commercial electric vehicle industry, the time has come for sustained growth. Tesla (NASDAQ:TSLA) stock, surging by 520% in the last one year is an indication of things to come for the industry. WKHS stock is another name that’s worth considering for multi-fold returns.

In the last six months, WKHS stock has surged by 480%. I would therefore advise gradual accumulation on dips.

Let’s Talk About The Numbers

The global electric vehicle market is expected to grow at a CAGR of 22.6% between fiscal year 2020 and FY2027. The global commercial electric vehicle market was valued at $34.7 billion in FY2018. The commercial EV market growth is expected at 39.9% through FY2022.

This is the reason to be bullish on WKHS stock. The company is not competing with the likes of Tesla or Nio (NYSE:NIO) in the consumer EV market. Workhorse Group is focused on the commercial EV market, which is likely to grow at a faster pace in the coming years.

There is bound to be competition. As an example, Tesla was planning to launch Class 8 trucks last year. The launch is now delayed to the next year. However, if the industry is forecasted to grow at a CAGR of 40%, there is room to absorb several players.

I would also like to mention here that Workhorse Group recently received an approval from the New York Truck Voucher Incentive Program. This will allow the company to offer “monetary vouchers for its C-Series all-electric delivery vehicles in select New York State counties.”

This serves as a kind of subsidy for adopting commercial EVs. I see more such incentives in the coming years to promote cleaner energy. This will act as a catalyst for accelerated growth.

Company Specific Growth Triggers

The company’s C-Series vehicles are likely to be the key growth trigger. As WKHS stock moves sideways to lower, a potential contract from the United States Postal Service can send the stock surging.

To elaborate, Workhorse Group is expecting an order of $6.3 billion from USPS. With a delay in order confirmation, the stock has been jittery. Roth Capital Partners analyst however believes that the company will be the likely recipient of the order. With USPS already having a long-term partnership with Workhorse Group, the probability of receiving the order is high.

In addition, the entire business is not dependent on the USPS order. Workhorse Group claims to have technology validation from the likes of FedEx Corporation (NYSE:FDX) and DHL International GmbH.

As the commercial EV market gains traction, order inflows can be robust in the coming years. The company already has the ability to produce 60,000 vehicles on an annual basis. Scalability is not a challenge.

Workhorse Group is also high on innovation. The company has seven granted and four pending patents. The “HorseFly UAV Drone is likely to be another long-term game changer for the company.” Per package last-mile cost by 95% with the HorseFly UAV drone.

With the novel coronavirus pandemic, the drone delivery business can gain traction. With the drone already being Federal Aviation Administration (FAA) compliant, there is visibility for growth from this segment.

It’s worth noting that in August 2020, Amazon (NASDAQ:AMZN) won FAA approval for “Prime Air” drone delivery fleet. Alphabet (NASDAQ:GOOG) and United Parcel Service (NYSE:UPS) have already received FAA approval for drone delivery. Clearly, the segment hold potential and Workhorse Group has an early mover advantage.

Concluding Views on WKHS Stock

WKHS stock had touched a high of $30.99 in September 2020. There has been a significant correction from highs and the stock trades at $17.4.

Investors can consider accumulating the stock over the next few months. The USPS contract can send the stock surging.

For an investor with a three to five year holding horizon, WKHS stock can deliver multi-fold returns.

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

Faisal Humayun is senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector. As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.


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