Why Workhorse May Be a Solid Speculative Buy on the Dip

Like many names in the electric vehicle (EV) and special acquisition company (SPAC) space, Workhorse (NASDAQ:WKHS) has had momentum over the past year. More recently, though, WKHS stock has been struggling. 

Image of a Workhorse (WKHS) logo and drone on the side of a truck.
Source: Photo from WorkHorse.com

On Dec. 2, the stock fell as much as 25% on news that the United States Postal Service (USPS) is delaying its decision on a new vehicle contract. Obviously, this news hurt the company, with bulls looking to the postal service as a major catalyst for new orders. 

But the stock’s skid on Dec. 2 did not turn out as badly as expected. Shares ended the day down just 19%, then proceeded to rally nearly 11% in the following session. Still, that beating took place after five straight daily declines. Right now, WKHS stock is more than 24% below its recent high on Dec. 1. 

Is that enough of an opportunity to get long? Let’s dig a little bit deeper into this stock. 

WKHS Stock Should Have Strong Growth

There are two major considerations with Workhorse: growth and valuation. Neither of these should be shocking to you — this is the balance almost all growth investors are weighing around the clock.

Essentially, it boils down to this: Does the current growth trajectory justify the valuation?

For WKHS stock, it may have. But the delays from the postal service are not making it easy. Workhorse is not forecast to generate much revenue this year, with consensus estimates sitting at just $2.17 million. A bulk of that revenue — $1.54 million — is forecast to come in the fourth quarter. 

Does that justify a $2.5 billion market capitalization? Not on its own. However, forward forecasts are much more encouraging. In 2021, analysts expect more than $138 million in revenue. In 2022, estimates climb to nearly $302 million

Of course, going from $2 million in sales to $300 million is a difficult feat. If the EV maker can do it, though, WKHS stock will likely see some giddy-up.

But how much will the postal service affect those estimates? It now expects to make its decision on the new mail truck contracts in the first quarter of 2021. Originally, it was supposed to make the decision in early 2020. Then, because of the pandemic, the postal service delayed for the end of the year. 

Carl Surran from Seeking Alpha notes, “The USPS has said the contract could be worth more than $6B to build as many as 180K delivery vans; it also could split the giant order between multiple parties.”

If Workhorse can snag a piece of this contract, it would be huge for the business and its future revenue. 

Bottom Line on Workhorse

Obviously, the hope is that the company can land a deal with USPS. However, the postal service is not the only game in town. With e-commerce seeing a huge boost, other companies are looking for logistics solutions too. 

This means Workhorse could provide the vehicles that these companies need, while also being environmentally friendly and saving operators money in the long run. That’s the value the company brings to the table.

However — while that may translate to revenue down the road — the issue for investors is trying to value the company now. And it doesn’t help that there is a large number of EV SPACs coming to the public markets. This creates a bit of frothiness and will no doubt lead to some volatility in the future. 

Yet, although the group is a bit speculative, we’ve had a good run with these types of stocks. Further, despite the anticipated volatility, WKHS stock can be a longer term winner. 

The stock is doing a great job bouncing from the recent lows and attacking the 20-day and 50-day moving averages. If it can reclaim this zone, a gap-fill is in play up toward $24.60. Above $26 and $30 resistance could be on the table. Above that and the all-time high at $30.99 is in play. 

On the flip side, though, below December’s $18.93 low could put a test of the $15 level in the cards. Below that and the 200-day moving average should provide a decent layer of support, particularly for longer term buyers. 

On the date of publication, the InvestorPlace Research Staff member primarily responsible for this article did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Article printed from InvestorPlace Media, https://investorplace.com/2020/12/why-workhorse-may-be-a-solid-speculative-buy-on-the-dip/.

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