It’s no surprise Workhorse (NASDAQ:WKHS) stock has gone nowhere in recent weeks. With news on its key catalyst delayed again on Dec. 1, the early-stage EV van maker’s shares have held steady between $20 and $22 per share.
But, as we wait for the U.S. Postal Service to announce who’s won its $6.3 billion next generation delivery vehicle contract, where do Workhorse’s odds stand now? Simply put, it’s tough to handicap.
As I’ve previously discussed, you can argue this upstart is the clear favorite. Competing bids, like the joint one from Ford (NYSE:F) and Oshkosh (NYSE:OSK), come from established vehicle manufacturers. But Workhorse has the only all-electric contender. In short, the optics of “going green” may prevail.
However, even as President-elect Joe Biden (more pro-EV than his predecessor) heads to the White House in January, there’s good reason why a Workhorse victory is far from guaranteed.
That being said, don’t take high uncertainty over its Postal Service contract prospects to mean this stock is a prime candidate for shorting. The risk of shares skyrocketing on major developments continues to outweigh the chances it craters back down to price levels seen earlier this year.
So, if it’s not wise to go long, and too risky to go short, what’s the play?
Steer clear for now.
Workhorse and the Postal Service Bid
To many bullish on WKHS stock, it may seem this company all but has the Postal Service contract in the bag. As seen from my commentary above, I remain somewhat skeptical the “green optics prevail” thesis will play out. But I concede the decision delay in early December could be a bullish signal in disguise.
Why? Analysts like Cowen’s Jeffrey Osborne see the upcoming changes in the Oval Office as the key factor behind the delay. This points to the decision leaning more towards the all-electric option. With “going green” a major part of what Biden ran on, it seems like everything’s falling into place.
Yet, while this makes for a snappy bull case, it’s not set in stone that Workhorse grabs this contract. And, not only because President Donald Trump’s appointee, Louis DeJoy, remains at the helm of the Postal Service, which somewhat counters the “Biden is president, therefore the Postal Service automatically goes with EV option” argument.
As InvestorPlace’s Josh Enomoto wrote Dec. 11, many are overlooking the strong chances of the lesser known contender, Karsan, winning the contract. How? Most may write off the Turkish company as a long-shot candidate. This makes sense, given its a foreign company competing for a U.S. federal government contract against contenders all based in America’s industrial heartland.
But, as Enomoto pointed out, Karsan’s contender is a hybrid. In other words, a strong middle-ground candidate between the environmentally unfriendly Ford/Oshkosh gasoline-powered contender, and Workhorse’s more “green wave” candidate.
However, while’s its primary catalyst is anything but a slam-dunk, don’t bet against it.
Why It’s Too Risky to Short
It’s debatable whether Workhorse is the favorite or the underdog to win the Postal Service deal. That makes it tough to justify going long at today’s prices. That being said, going short doesn’t look to be that great of a proposition, either.
First, while its odds of winning the contract are questionable, the risk shares double, or even triple, in the event of a win outweighs the potential profits from shorting if shares tumble back down to low single-digits. Even if it only gets a piece of contract, investors buying on just the headlines will bid this up to even more irrational price levels.
Second, the company’s secondary catalysts could help put more points into the stock. As its primary catalyst remains pending, I see shares holding steady at today’s prices. But, if the company scores a major win in its quest to grab a piece of the commercial delivery fleet market, or if its 10% stake in Lordstown Motors (NASDAQ:RIDE) soars in value once again, shares could bounce back towards prior highs (around $31 per share).
Third, the short side remains a crowded trade with Workhorse. As of Nov. 30, 21.4% of outstanding shares were sold short. Any sort of positive news could fuel a short squeeze, as this stock’s many bears scramble to cover their positions.
Steer Clear of WKHS Stock
At first glance, it seems Workhorse all but has the Postal Service deal in the bag. But with good reason why another contender will prevail, buying at today’s prices may not be worthwhile. On the other hand, with so much at play that could fuel a rebound, going short doesn’t look like a wise move, either.
So, what’s the call on WKHS stock? With little reason to go long (or short), stay on the sidelines for now.
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.
