The great electric-vehicle rally of 2020 quickly fizzled out for Workhorse (NASDAQ:WKHS) stock this month. The company’s electric-mail trucks are among the top contenders to win a contract from the United States Postal Service (USPS).
However, after a delay of the decision by the postal service, many are now questioning the durability of the EV maker in the long-term. The news was a major blow for Workhorse, whose shares dipped 25% following the announcement.
The Covid-19 vaccines will kick-start the path towards a post-pandemic world, but the road to recovery will be a long and arduous one for many businesses. That is especially true for startups like Workhorse that are yet to produce a profit since going public. Analysts have mixed views of the impact of the USPS’ delay on Workhorse. It would, however, be best to steer clear of the stock for now.
WKHS Stock Tumbled After the USPS’ Delay
Many believed that Workhorse would definitely win a deal to manufacture electric-mail trucks for USPS by the end of the year. However, USPS delayed its decision on the order. The postal service now says that the winner or winners of the lucrative deal, worth a total of $6 billion, will not be named until the first quarter of 2021. As expected, investors reacted negatively to the news, pushing WKHS stock below $20 per share. The stock has since recovered to $21.50.
However, this isn’t the first time the USPS has delayed the deal. The postal service postponed the decision in 2018 and again in 2019. In 2020, a decision was imminent, but Covid-19 put a wrench in the timeline. The pandemic forced USPS to rethink its capital investments, resulting in a further delay.
Just a few weeks after the rally by EV stocks following the election results, the entire sector has experienced a pullback recently.
The dip by WKHS stock may not seem like much, given the company’s 800% rally in 2020. However, the USPS deal was set to be a major win for the EV maker this year. There’s no denying that the market for EVs will be huge in the future. But until the USPS contract is inked, Workhorse is not worth buying.
Other Red Flags to Consider
Analysts’ reviews on Workhorse stock remain mostly mixed. Some analysts, like Jeffery Osborne of Cowen, believe that the delays in the USPS’ process are expected, given the transition to the Biden administration. He held onto his “buy” rating with a price target of $23.
However, other analysts like Craig Irwin of Roth Capital used the opportunity to downgrade the shares from “buy” to “hold.” Electric-powered vehicles are the way forward for automotive companies, but many investors and analysts are still on the fence about Workhorse’s potential.
However, the delayed USPS contract is just one of many reasons why WKHS stock shouldn’t be bought right now. For one, as mentioned earlier, Workhorse sees no clear path to profitability at the moment. Since its inception in 2007, the company is yet to produce a profit. High capital expenditures and R&D costs have impeded its efforts to get into the black. As of September of this year, its total costs are $20 million higher than the year before.
Looking ahead, things don’t seem too bright for the electric-truck maker. The pandemic has created numerous supply-chain issues for Workhorse, which will curtail its production in 2021. The company has also estimated that its deliveries will not meet its 300-400 vehicle target for 2020. That will also impact its upcoming quarterly results and widen its net loss of $84 million from Q3 of this year.
The Bottom Line
It’s been a great year for EV makers like Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO), but not all companies in the same sector are equal. Investors were hoping for big gains from WKHS stock at one time, but the fundamentals and future prospects of the company are undeniably weak. The shares will climb when the USPS deal pulls through, but the owners of the shares will have to wait until then for any gains.
As the pandemic continues to impact Workhorse’s bottom line, the future performance of this stock is largely unpredictable. This stock is a buy for investors willing to play the long game. But those looking for some quick gains should steer clear of Workhorse.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.