Recent Pullback Makes Workhorse Stock Very Enticing

Workhorse Group (NASDAQ:WKHS) is perhaps one of the most talked-about stocks coming into this week. Everyone continues to hold on with bated breath for the U.S. Postal Service’s decision on a $6 billion 165,000-unit contract to replace its delivery fleet. Of course, the federal agency had its hands full with the 2020 presidential election. With the dust settling on the election, the agency can now concentrate on finalizing the contract’s name or names. However, the delay has not done any favors for WKHS stock.

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

Shares have been sliding after closing above $30 in mid-September and finished at $17.29 per share last Friday. Although it’s not set in stone, we are expected to see the postal service decide by the end of the year. Like I mentioned in my previous article about the company, it’s more likely that Workhorse will get a portion of the contract rather than the whole thing.

Locking in a part of the contract might even be beneficial for the company since it lacks the capacity to take on such a big endeavor. The fact that the election is over is also a boon for the company. There was a lot of speculation that the Ohio-based automaker would get the contract because Ohio is a swing state.

Taking everything into account, I would say that WKHS stock offers great opportunities at current rates. You can book some profits as the stock makes its way upward.

I agree with Roth Capital analyst Craig Irwin, who sees a positive outcome for Workhorse in the USPS race. Whether the company ends up getting a portion of the contract or its entirety, I would say that there’s a narrow window to cash in.

WKHS Stock Offers Upside After Sell-off

One of the main reasons I advocated against buying more WKHS stock last time was the price run-up. Markets were running hot from the prospective $6 billion contract win, leading to outsized valuations. However, delays in assigning the contract brought the stock price to a more reasonable level.

Also, the price drop notwithstanding, we do have some additional clarity surrounding how WKHS will execute the contract. In mid-July, Workhorse was making five to 10 electric trucks a month. Since that time, the company has expanded its capacity and can now make 40 to 50 vehicles.

It will continue to build up capacity by using proceeds from its recent $200 million notes issue. The guidance was for the company to have 300 to 400 vehicle capacity by the fourth quarter. That, unfortunately, hasn’t been reached. But there are positive signs that the company is slowly expanding its size.

Production is underway at Union City, Indiana, and Loveland, Ohio facilities. In case the company gets the postal service nod, Workhorse already has the ability to scale its manufacturing through a 265,000 square foot plant. It also has the option of using the Lordstown plant, which has a 6 million-square-foot maximum capacity.

Before the recent pullback, it seemed there were limited profits that you could make on WKHS stock. Despite its 50% decline, the stock is still up more than 400% year-to-date. Many wondered whether it was too late to cash in with the euphoria surrounding the postal contract baked into the stock.

But with the share price falling substantially and an update on production capacity, I think WKHS stock has become an interesting spec play. The price target for the stock is $25.50 per share.

Technical Analysis

Before wrapping up, I want to talk a little about WKHS stock’s technicals. As you can see from the chart below, shares are trading below the 50-day moving average, a bearish signal. However, the share price is above the 150-day moving average, and there is also support at the $15 a pop level. The stock price broke the 50-day SMA resistance, bouncing downwards, so you should think short from a technical standpoint.

Chart showing the 50-day SMA of Workhorse Group (NASDAQ:WKHS)
Source: Chart courtesy of StockRover.com

Now let’s take a look at the relative strength index (RSI). You can see that the stock has had quite a wild ride in recent months from the chart below. However, the RSI Oscillator points to a shift from a downward trend to an upward trend – where WKHS’s RSI Oscillator exited the oversold zone and is now in neutral territory.

Chart showing the relative strength index (RSI) of Workhorse Group (NASDAQ:WKHS)
Source: Chart courtesy of StockRover.com

Workhorse Is Getting Into a Better Position

I should tell you here that while technical indicators can be helpful, they should not be your ultimate reason for pouring capital into this one.

As I have said, there are two reasons you should think of investing in WKHS stock. First, it has lost a lot of steam, so profits are available as it makes its way back north. Second, the company has built up capacity in case its awarded the postal contract.

Again, it seems unlikely that Workhorse will get the entire contract. Considering the endeavor’s size, I wouldn’t be surprised if there are a handful of eventual winners. But still, I will give Workhorse brownie points for improving its capacity.

I am not very bullish on the company, but I will say shares offer the chance to make profits at current rates.

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

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. He has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.


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