What’s the latest on Workhorse (NASDAQ:WKHS) stock? The electric vehicle (EV) play’s shares have dipped from prices above $30 per share to around $19.35 per share. But the stock remains one of 2020’s top performers, having jumped 536% so far in 2020.
Yet in the past few weeks there has been a development that damages this stock’s outlook. I’m talking about the Oct. 8 scathing “short report” from Fuzzy Panda Research (which is shorting Workhorse).
According to Fuzzy Panda, the company’s odds of winning the multi-billion dollar delivery van contract with the U.S. Postal Service (USPS) may be worse than many bears, including myself, previously believed.
The shares may drop sharply if the USPS catalyst doesn’t pan out. Sure, the company has a 10% ownership stake in Lordstown Motors which is a positive catalyst. Lordstown will soon go public via a merger with blank-check company DiamondPeak (NASDAQ:DPHC), a SPAC.
Once the deal closes, the value of Workhorse’s stake in Lordstown could soar. Yet, although the “EV bubble” could continue into 2021, it’s uncertain whether the shares will take off again. And even if the value of Lordstown’s stake increases, it may not be enough to move the needle for the company.
So, what should investors do with WKHS stock now? While the company could prove its recent critics wrong, that isn’t enough to justify a buy at today’s prices. Investors should continue to avoid this “hot stock.”
WKHS Stock and the USPS Contract
The key takeaway from Fuzzy Panda’s report is that Workhorse has a low chance of winning the USPS’ Next Generation Delivery Vehicle (NGDV) contract. Previously, I made the case why Workhorse’s rivals had a better shot of winning the contract. Namely, I noted that all the other manufacturers bidding had a more substantial track than the upstart Workhorse.
The grab bag of critical failures discussed in Fuzzy Panda’s report supports my position. Granted, many of these “critical failures” occurred in the company’s early stages. In the years since, Workhorse may have finally gotten over the steep learning curves that are part-and-parcel of manufacturing vehicles.
Yet, if this short-seller’s report is inaccurate, why hasn’t the company issued a press release refuting it? Sure, after Nikola’s (NASDAQ:NKLA) stock tumbled following its response to a vocal short-seller, perhaps Workhorse is keeping quiet, waiting for things to blow over. However, who’s to say this isn’t a case of deafening silence?
That being said, it’s hard to handicap Workhorse’s true odds of winning the contract. On one hand, the company appears to be “not ready for prime time.” On the other hand, given the positive optics of picking the only fully EV contender, the USPS may cut it some slack.
We won’t know until at least December. But, until then, how will the shares perform? The jury is still out.
Lordstown, the Election, and Other Near-Term Factors
While the USPS catalyst remains in limbo, WKHS stock has another potential catalyst at play. I’m talking about the upcoming merger of Lordstown and DiamondPeak. But, given how much DPHC stock has declined in recent weeks, the party may already be over before it even started.
What do I mean? In light of the sudden pop and subsequent drop of DiamondPeak’s shares, investors may not come back for an encore. While Lordstown’s underlying business has strong prospects, DiamondPeak won’t rally without an overall rebound by EV stocks.
Yet there’s plenty in play that could sustain the “EV bubble” into 2021. Namely, the results of the Nov 3 U.S. presidential election could drive another EV stock rally. Simply put, there’s still a great deal to compel investors to continue riding the green wave.
But that’ s hardly enough to justify the bull case on WKHS stock. As I’ve said previously, investors may be overestimating the company’s exposure to Lordstown. Today’s share price continues to imply that the growth of its delivery-van business (both with USPS, as well as with private delivery companies) will go off without a hitch.
In short, “priced to perfection” remains the keyword. And if its performance falls short of that, watch out!
What’s The Call Now? Steer Clear For Now
The Fuzzy Panda report gives credence to the short case for Workhorse. Yet, given that the push to “go green” could allow the company win the USPS contract, all bets are off regarding this key catalyst.
As for the Lordstown catalyst, there’s plenty at play that could fuel a rebound by EV stocks. But, even if Lordstown rallies after it completes its deal with DiamondPeak, Workhorse’s 10% stake probably won’t move its stock’s needle as much as investors today believe it will.
Things may not be as dire for Workhorse as Fuzzy Panda implied. Yet it’s clear that the USPS opportunity is anything but a sure thing for Workhorse. With the shares still “too hot to touch,” continue avoiding WKHS stock for now.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, contributor to InvestorPlace, has written single stock analysis since 2016.