Electric vehicle ebullience is palpable in financial markets this year, but as Workhorse Group (NASDAQ:WKHS) proves, enthusiasm can be fleeting in what’s becoming a “show me” climate for EV equities. On the back of an almost 11% drop on the final trading day of October, WKHS stock slid nearly 39% last month.
Today, Workhorse is a tenuous spot. It’s got all the trappings to lure unknowing investors into a heartache type of situation.
WKHS stock seduces with a 406% year-to-date gain and a staggering 1,070% rally off its lows. Unfortunately, this name was cut in half from its recent high. Alone, that’s concerning.
However, making Workhorse’s recent woes more vexing is that the stock is sliding against the backdrop of some decent news flow.
For example, on Oct. 16, the company said it closed a $200 million convertible note sale, indicating some institutional investors have confidence in the company. The transaction results in $194.5 million in proceeds for the EV maker.
The funds will allow an acceleration of production, an advancement of new products directly for the last-mile delivery market and an expansion of our drone operations,” said Workhorse CEO Duane Hughes in a statement.
He went on to say the company appreciated its financial partners support.
WKHS Stock Waiting on Big Catalyst
Adding to the concern regarding Workhorse’s October struggles is that the company, late in the month, submitted its application to the Federal Aviation Administration (FAA) for its HorseFly Unmanned Aerial System (UAS).
Drones are a legitimate frontier in the all-important e-commerce last mile – getting packages from warehouse to customers’ doorsteps. Drones can execute air drops and ground deliveries and represent cost-effective, environmentally friendly for online retailers and parcel delivery firms.
Yet, WKHS stock didn’t benefit from news of the application submission.
What that says is, at least-over the near-term, Workhorse upside is highly reliant on a single catalyst: A possible electric delivery truck deal with the United States Postal Service.
EV investors are familiar with this scenario as it’s remarkably similar to what Nikola (NASDAQ:NKLA) is dealing with General Motors (NYSE:GM). Nearly all of the former’s fortunes are tethered to a decision to be made by the latter.
In the case of Workhorse, the deal with the Postal Service is potentially transformative. For nearly every company, clients don’t get much better than Uncle Sam. The issue isn’t the heft of the contract.
It’s valued at $6 billion, meaning it’d be a major coup for Workhorse, a company with a market capitalization of just $1.82 billion as of Oct. 30 and scant revenue over the past several quarters.
Rather, the issue here is time to the actual announcement. The Postal Service has to deliver mail Monday through Saturday. It does not, however, have to cow-tow to Workhorse investors.
Tough Spot for Workhorse
There are some things that are abundantly clear. First, USPS has a lengthy history of EV flirtations, so the interest is clearly there. Second, electric trucks will result in lower costs for USPS, which is important because the service is an infamous money loser.
Finally, for investors, the upside potential with WKHS stock is beyond tempting, but the USPS dragging its heels on the announcement is frustrating and weighing on the shares.
Until the USPS accord becomes set in stone, there’s burden on Workhorse to prove its foundation is strong enough heading into 2021 that it can deliver 300 to 400 vehicles annually and leverage other businesses, namely drones, into credible sources of revenue.
Or the Postal Service could simply deliver for Workhorse, eliminating uncertainty and reducing volatility in the process.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.
