Electric vehicle upstart and last-mile delivery specialist Workhorse (NASDAQ:WKHS) has had more than its share of controversy in 2020. This has been reflected in the wild price action of WKHS stock. Investors have every reason to wonder where this roller-coaster ride will end.
Back in August, I recommend a position in WKHS stock because the company had introduced the idea of the HorseFly, which is Workhorse’s name for an autonomous four-rotor drone that could make last-mile delivery cheaper and more efficient.
Since I issued my bullish outlook on WKHS stock, the share price has completed a crazy up-and-down round trip. Along the way, Roth Capital’s Craig Irwin downgraded the stock from a “buy” to a “hold” while slashing his price target on WKHS to $27.
The U.S. Postal Service (USPS) delaying its contract decision might be a contributing factor in Irwin’s downgrade as well as the pullback in the WKHS stock price. But then, could a little HorseFly help Workhorse get its mojo back, even without a USPS contract?
A Closer Look at WKHS Stock
I’ll be the first to admit that the possibility of Workhorse winning a USPS contract for 140,000 electric mail trucks (Workhorse is among three finalists) has been a prime mover of the WKHS stock price.
Another major influence has been the moves in Tesla (NASDAQ:TSLA). Other electric-vehicle names tend to follow TSLA stock. When the market sentiment is bullish on Tesla, the WKHS stock price often rises.
In light of these factors, the ascent of WKHS stock from less than $3 in May to a 52-week high of $30.99 in September makes a little bit more sense. And, so does the share price’s decline to $15 and change in October.
At the very least, we can say that the WKHS stock price is more reasonable now. Coming down from nearly $31 in September and October isn’t necessarily a bad thing. If anything, it’s a buying opportunity for prospective investors.
About That Contract
Since the USPS delayed its decision on awarding a federal contract that’s potentially worth $8.1 billion, some traders have expressed concerns about WKHS stock. InvestorPlace contributor Faizan Farooque, for instance, suggested that “investors have already priced in the contract before it’s awarded.”
Larry Ramer, another InvestorPlace contributor, provided the details on a firm issuing a scathing report and even taking a short position:
“On Oct. 8, short-seller Fuzzy Panda Research issued a report in which it stated that it believes that Workhorse has no chance of winning a huge deal to provide USPS with new vehicles. Workhorse bid on the $6 billion deal along with its partner, VT Hackney.”
I’ve seen some WKHS stock bulls go through extreme mental gymnastics. They’ll sometimes stretch the bounds of logic in order to defend the supposition that Workhorse will win the USPS contract.
To them, I say, “Let it go.” Workhorse can still thrive as a company even without that lucrative contract from the USPS.
Let’s Talk About Drones
So, let’s get off of the topic of the USPS contract for a moment. Right now, I feel that it’s a good time to talk about drones. Workhorse CEO Duane Hughes certainly doesn’t seem to mind talking about them.
One can’t blame Hughes for wanting to discuss drones. After all, his company recently submitted a formal “Type Certification” application to the Federal Aviation Administration (FAA) for Workhorse’s HorseFly drone.
Perhaps I shouldn’t call the HorseFly a “drone.” The correct technical term is “unmanned aerial system” or “UAS.” Either way, submitting a “Type Certification” is a big step towards establishing the HorseFly’s airworthiness.
The FAA has strict standards for airworthiness, no doubt. But then, the HorseFly UAS has been designed to meet those standards. Indeed, it’s been validated for use with “approximately 80% of most commercial package sizes, shapes, and weights.”
Moreover, the HorseFly has “demonstrated the ability to carry a ten-pound payload up to 10 miles.” That’s pretty impressive for a little drone. As I see it, the HorseFly could be the key to Workhorse’s future success, with or without the USPS.
The Bottom Line
It’s understandable that traders are focused on the USPS contract. This has been a major influence on the WKHS stock price. The movement of TSLA stock also has to be considered.
Yet, let’s not discount the importance of Workhorse’s drone/UAS technology. The HorseFly could absolutely be a game changer. It might even help the WKHS stock bulls stage a comeback. And just maybe, Workhorse can thrive without a USPS contract.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
