As enthusiasm for electric vehicle (EV) stocks cools, what’s next for Workhorse (NASDAQ:WKHS) stock? With overall speculation in “green wave” stocks now less of a factor, attention now turns back to the potential catalyst that put this stock on the map in the first place.
I’m talking about the prospect of it grabbing part (or all of) the U.S. Postal Service’s Next Generation Delivery Vehicle (NGDV) contract. But, with news of yet another contract decision delay, those buying this stock on headlines alone continue to head for the exits.
Sure, the company still has more in motion than just the USPS deal. Along with potential deals with private sector delivery companies, the company still has its 10% stake in Lordstown Motors (NASDAQ:RIDE) as well.
Yet, while it’s made some deals in the private sector, inking a major fleet deal remains a work in progress. And, with EV stocks overall heading lower, don’t expect its investment in Lordstown to help minimize further declines in the near term.
Taking all these factors into account, stay on the sidelines for now.
Is Postal Service Catalyst Still in Play?
As mentioned above, with “EV mania” fading, it’s time for the company’s main catalyst, the Postal Service contract, to pick up the slack. Previously, I made the case why, thanks to optics, underdog Workhorse may have an edge over the competition.
In other words, since this company’s vehicle candidate is the only contender in the running that’s all electric, the urge to “go green” may prevail. Even as rival contenders may have greater expertise and scale to deliver on the agency’s requirements.
However, this primary catalyst may be falling onto the back burner as well. Why? As InvestorPlace’s Sarah Smith wrote Dec. 2, the Postal Service pushed back its vehicle contract decision to early 2021.
This is the second time the agency has delayed its announcement date. But, while continued delays may scare off speculators who buy and sell the stock on headlines alone, does this help or hurt the company’s long-term prospects?
Mr. Market may not agree, but this news may be a positive for Workhorse. Why? You can make the case that, the longer the Postal Service delays it, the greater the all-electric contender grabs some (or all) of the contract. With the more pro-EV Biden administration entering the White House in January, Workhorse’s “green candidate” may have greater chances in 2021 than it would in the last days of the Trump administration.
On the other hand, don’t overestimate the recent U.S. presidential election’s role in all of this. After all, Trump appointee Louis DeJoy is set to remain in as postmaster general even after Biden takes office.
Expect Further Short-Term Declines
The jury’s still out on how the recent Postal Service decision delay impacts the long-term bull case for WKHS stock. But, in the short term, expect it to help drive shares lower.
Granted, the Postal Service catalyst isn’t the only factor in play for Workhorse. Besides pursuing this deal, the company has made headway signing on private sector delivery services like UPS (NYSE:UPS) as well.
But this potential alone isn’t enough to justify buying Workhorse at today’s prices. As this commentator recently noted, the company still needs to deliver. Until then, investors are simply paying up for hype, given today’s still-frothy valuation.
Sure, if the company winds up winning the Postal Service deal, today’s valuation for WKHS stock may look reasonable in hindsight. But this possibility has yet to become a certainty. There’s no reason to buy now, at today’s rich forward multiple (price-sales ratio of 17.8, based on estimated 2021 sales).
Yes, previously I saw the company’s Lordstown investment as a not-so-hidden asset that could minimize downside moves. Yet, with EV stocks pulling back, I don’t see this happening anymore.
Put it all together, and there’s not enough to support the stock at today’s prices (around $21.70 per share). Expect shares to head towards $15 as we close the books on 2020.
Hold Off on WKHS Stock
This EV contender isn’t out of the running just yet. But with the Postal Service again delaying its decision, expect shares to head lower in the near term. The company may have more in play than just the postal vehicle catalyst. But, these other factors may not be enough to counter waning EV stock enthusiasm.
Those who bought in at lower prices may not want to throw in the towel just yet. But those who have yet to enter a position? Sit things out for now and wait for WKHS stock to head lower before reassessing the situation.
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, a contributor to InvestorPlace, has written single stock analysis since 2016.