Workhorse Remains a Speculative Buy With a Capital ‘S’

Workhorse (NASDAQ:WKHS) has been one of the latest electric vehicle (EV) stocks to come crashing down. Since closing at more than $30 in mid-September, WKHS stock dropped 30%. And if InvestorPlace contributor Thomas Niel is correct, Workhorse may soon be testing a level of support around $15 by year end.

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

Would this be a bad thing and how should investors react? These are two questions that don’t have easy answers. It’s possible that the market is developing a level of EV fatigue. It’s also possible that 2021 may be a year for future growth.

Last month, I suggested that WKHS stock was a speculative buy if you were willing to look beyond the news. The problem is that the news keeps getting in the way. Workhorse recently received good news by way of a purchase order for 500 trucks. And then it just as quickly received disappointing news as the United States Postal Service announced a further delay in its decision on which company (or companies) will be manufacturing its fleet.

The Good and the Bad of the USPS Delay

A significant reason behind the growth of WKHS stock in 2020 is its potential contract with USPS. The USPS is looking to renovate its fleet of utility trucks as part of its Next Generation Delivery Vehicle (NGDV) contract.

As many investors know, the decision on which firm(s) will be awarded the contract was pushed into the second quarter of 2021. On the surface, that’s really not a big deal. Workhorse announced that more than a third of its workforce being impacted by the virus.

And with a widespread vaccine being months away, it will likely be the second quarter of 2021 before we begin to remove the risk premium that many factory workers face.

Plus, the USPS deliberately used language that suggests more than one company may be awarded the contract. That’s potentially bad news in that Workhorse may not get the entire contract. But it can also mean that the company’s odds for getting at least a piece of the contract are better.

However, there is an “all or nothing” feel to the contract. It’s true that the company just received a purchase order for 500 trucks from Pritchard Auto Company. That’s nice, but by itself it’s insufficient.

And it’s fair to have concerns that companies like Amazon (NASDAQ:AMZN) and UPS (NYSE:UPS) that were doing business with Workhorse have gone elsewhere.

The Last Mile Will Continue to Be Important

One of the reasons I’m cautiously optimistic about Workhorse is because of the niche it serves. The company is involved in the all-important last mile of delivery. As the buzzwords go, the company is “leaning into” the e-commerce trend.

Consumers are becoming comfortable having everything from peanut butter to prescriptions delivered to their door. I can buy into the idea that consumers are absolutely looking for a return to a world outside their home.

But every time the country goes through an event like this, a remnant remains. Humpty-dumpty gets put back together, but cracks remain. And in this case, those cracks will likely be for brick-and-mortar retailers that will have to continue to compete aggressively for online dollars.

So Workhorse should be able to capture its fair share of a total addressable market that it puts at approximately $18 billion annually. To that end, Workhorse’s customers include DHL (OTCMKTS:DPSTF), FedEx (NYSE:FDX), W B. Mason, and Ryder (NYSE:R).

That being said, Workhorse was doing business with Amazon and UPS and now it is not. And that is evidence that the company no longer has a first-mover advantage and competition is growing.

WKHS Stock Has Both Risks and Rewards

The analyst firm Oppenheimer is high on Workhorse and set a price target of $23 for the stock. While that’s about 30% higher than the consensus price target, it suggests that the stock may not have much higher to climb in the near term.

After my article last month, WKHS stock nearly reached the $30 level. I wouldn’t be looking to enter the stock at that level. However, at its current price, you can entertain a long position. But remember the payoff for your investment is likely to be at least a couple quarters down the road.

On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.


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