At the height of the special purpose acquisition company (SPAC) bubble just a few weeks ago, Workhorse Group (NASDAQ:WKHS) topped $30.99. The euphoria ended quickly and without warning when market selling accelerated. The Nasdaq lost 5.39% last week, taking WKHS stock down by 24% with it.
Yet it’s not that simple. Markets are worried that a big contract will not bear fruit.
Assuming that the market panic ends and investors regain their risk appetite, does Workhorse have any near-term upside ahead?
A Closer Look at WKHS Stock
Workhorse will post third-quarter 2020 earnings 10 a.m. eastern Nov. 9. Analysts expect the company, which is focused on supplying sustainable and cost-effective drone-integrated electric vehicles, to lose money.
The consensus earnings per share loss of 10 cents should not hurt the WKHS stock price. Ahead of the report, markets may continue selling the stock now and asking questions later.
Workhorse’s expected contract with the USPS is the single biggest catalyst that drove shares higher. But until it announced the deal, markets will not have the patience to hold shares amid the uncertainties.
In the second quarter, the company posted a loss of 11.7 cents. It recorded revenue of just $0.09 million. At the time, shareholders bet on the eventual profits based on the backlog.
Workhorse had a backlog of around 1,200 units. This resulted from two orders with Ryder. At the time, it expected its channel partners to help the company grow its order quantity in the backlog.
Now that it has the regulatory approval to operate throughout all 50 states, investors need not doubt the order growth.
USPS Deal Awaits
CEO Duane Hughes did not confirm that it signed the USPS deal. He could only confirm that the company has an implementation schedule in place, which starts in California.
As it works closely with the customer, it will prepare its infrastructure to meet the upcoming demand.
To-date, Workhorse delivered its first truck in the June quarter. CEO Hughes said they were identifying other areas of potential efficiencies and also engineer out the cost.
“That’s the phase that we’re in now by delivering vehicles, getting customer responses, getting feedback from them,” he said.
When it posts third-quarter results, investors should not expect the company to announce an impressive delivery report. Instead, the company’s guidance on deliveries starting in the fourth quarter might re-ignite the share price.
In the last five quarters, Workhorse beat expectations most of the time.
Despite the strong track record, investors may not want to bet on shares rallying after the report.
The stock’s drop is a disturbingly ominous sign for problems ahead. Workhorse may post a decline in the backlog growth, delays in orders, or may post bigger losses.
Any of those data points will send shares lower, even after the stock fell by so much already.
Chief Financial Officer Steve Schrader said in last quarter’s conference call that it could build 60,000 chassis. It may automate many tasks and call in sub-assembly and subcontracting resources.
First, it needs to announce the big contract deal with USPS. Once that happens, the stock could fly high again.
Your Takeaway On WKHS Stock
Investors should wait for the implosion in various SPAC stocks, including that of WKHS stock, to play out first. Bearish momentum is too strong to bet against.
Also, the stock may not bounce back enough in the near-term to give investors a profitable trade.
Once sentiment shifts to the positive and buyers return, those who missed the last run-up that began in June may consider buying shares again.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.