Electric vehicles come in so many eye-popping styles and prototypes, and it’s easy to find hypnotic allure in the sports cars, spunky roadsters and futuristic trucks entering the market. Then there’s Workhorse Group (NASDAQ:WKHS), which flies under the radar in large part because it makes frumpy delivery vans. In like fashion, WKHS stock hasn’t cast a spell on investors in the same way as Fisker (NYSE:FSR) or China’s Nio (NYSE:NIO).
Another issue to consider is that Workhorse simply doesn’t sell a lot of vehicles. True, Fisker hasn’t sold a single one and won’t until 2022. But it gets lots of media mileage from bragging about how its Fisker Ocean SUV will have vegan seats, otherwise know as the Most Inane Selling Point of Any Car in History. Meanwhile, WKHS stock owners have begun to ask when the company’s performance will pick up.
WHKS stock has spiked and slumped since July 2, up a smidge above 1%. If you’ve been watching the meteoric performances of Nio and Tesla (NASDAQ:TSLA) over the last 12 months, this can’t possibly make you happy. Yet WKHS has a market niche to itself, something that could bode very well once the delivery vehicle maker delivers more vehicles. To that end, let’s check the mailbox.
WKHS Stock and the Special Delivery
At the company’s Loveland, Ohio headquarters. Workhorse is waiting for that big check in the mail — literally. WKHS stock took a single-day hit of 19% on Dec. 2 after the U.S. Postal Service announced that it would delay a decision on awarding a contract to build up to 180,000 mail delivery trucks until the first quarter of 2021.
To put things in perspective, that contract is worth in excess of $6 billion. That’s more than double what Workhorse itself is worth and the prolonged wait has understandably discouraged investors. The company is considered a leader in the race to land that deal. (Then again, we should know the drill. Delayed postal deliveries are a fact of life.)
Since Workhorse has the otherwise piddly goal of producing 1,800 vehicles in 2021, this deal would make the company’s day. And quarter. And year. And possibly decade. Talk about a kick in the rear for WKHS stock. But one thing, and a mighty big thing it is, gives me pause. Trust me, as this comes from a managing editor who worked until April in the government contracting world.
Don’t Count on a Postal Service Payday
That is: Government bodies and independent agencies like USPS seldom if ever operate on tenets such as logic or reliability — unless you count unreliability as something reliable. While this has nothing to do with Workhorse as a company, the prospect of wagering 100% on the Postal Service delivering on any expectation ranks right up there with lassoing a unicorn with a licorice whip.
Reporting on USPS for the Chicago Tribune, I wrote stories about an executive who spent in the six digits to have an executive washroom built in a post office facility about to be shuttered. Louis DeJoy, the current Postmaster General (though not for long), made bloodsport of destroying mail sorting machines. He didn’t even know what it cost to mail a postcard, and he got the top job.
Now, let’s think on that for a bit. If some swaggering senator walks into USPS headquarters tomorrow and talks up his nephew Curly, who builds electric vans out of the same greasy garage where he operates a chop shop, should any of us be the least bit surprised when Curly orders a magnum of Dom Perignon? Government contracting process blah, blah, blah. That’s not how D.C. works anymore and perhaps it never worked that way at all.
Don’t sit there and tell me something like this can’t happen. Perhaps the only place that defies the laws of common sense more than Wall Street is Washington D.C.
Of Betting on the Workhorse
You can say why the Postal Service deal is such a big deal. As EV companies go, Workhorse is a Shetland pony. Its market cap stands just shy of $2.6 billion, which is a speck compared to the likes of Nio. The Chinese juggernaut raised $3 billion in just days, selling 68 million new shares in mid-December. But at least the two outfits have something in common: Neither makes a profit. Almost all EV companies don’t, in fact.
Yet investors have gone gaga for anything with a big honking battery and four wheels these days, so it remains a distinct possibility that WKHS stock will get some love at some point. Analysts have a consensus favorable opinion. Not a single one calls WKHS stock a sell and four call it a buy.
That noted, you can feel them getting antsy. Whereas just one called WKHS stock a hold three months ago, three call it a hold today. That’s shifted the consensus from buy to overweight, though the average price target of $24 would represent a healthy jump of more than 13%
Here’s my call: Assume that USPS deal isn’t going to happen. There’s enough wishful thinking out there among the speculating set for all of us; let’s show some cool-headed rationality. Without the deal, WKHS stock would still merit consideration as a longer play. With the deal, Workhorse will turn into a thoroughbred. Either way, this horse has just reached the starting gate. It may take a few laps around the calendar to reach giddy-up speed.
On the date of publication, Lou Carlozo held long positions in NIO and TSLA.
