There’s plenty in motion working in the favor of Workhorse Group (NASDAQ:WKHS) stock. First of course, is President Joe Biden’s recent call for the federal government to convert its fleets to electric. This points to this early-stage EV maker winning the U.S. Postal Service’s vehicle contract.
Secondly, the retail investor mania is helping to make this one of the market’s most winning stocks. Many bears have bet against Workhorse as they see it as all sizzle and no steak. But after the GameStop (NYSE:GME) affair, calling out overvalued companies is a dangerous game.
As retail investors continue to bid up “meme stocks” on anything but fundamentals, the Wall Street adage “never short a stock based on valuation” has never been so true.
Put both factors together and it’s no surprise WKHS stock is up around 80% so far in 2021. Yet, while the bears have lost big betting against it, they may finally have some vindication. Looking closer at the details regarding the Postal Service contract, and the whole idea that this upstart has the edge goes out the window.
That being said, Workhorse shares may be destined back to prior price levels (well under $10). Given the possibilities that the contract decision again gets delayed (right now, it’s slated for late March), along with continued unwinding of short positions, this overvalued, overhyped stock could stay at current price levels for the time being.
What does that mean? There’s little room for shares to run and a long time until shares (possibly) collapse.
What’s the best move? With stronger ways to play the overall EV trend out there, skip out on this one for now.
WKHS Stock: Possible USPS Contract Win Priced-In As a Certainty
Workhorse’s “meme stock” status has contributed to its surge. But what set the recent run-up into motion was Biden’s call to phase out the use of gas-powered vehicles by the federal government. This points to a more rapid pivot to EVs by governmental agencies, including the Postal Service.
As you may know, Workhorse is the dark horse contender to win this multi billion-dollar contract. With the new administration pushing hard for federal agencies to go green, it seems like a no-brainer that the Postal Service will select Workhorse. Even as competing bids from Ford (NYSE:F)/Oshkosh (NYSE:OSK), and Karsan are from more established manufacturers.
However, there’s a major inconvenient truth: as a Seeking Alpha contributor recently discussed, the other bidders have the capability to deliver an EV version of their candidates. In short, the idea that this early-stage company has this big ticket deal “in the bag” does not match up with the details.
Without a USPS contract win, a move back down to single digits seems inevitable. Investors who bought this just to bet on this catalyst won’t stick around to see what’s next. Even so, it’s still not worth it to go short WKHS stock.
Shares may eventually reverse course. But for the time being, expect them to remain at or near today’s price levels.
Why Shares Could Remain Inflated
Workhorse’s odds of winning the Postal Service contract may be nil. But shares could hold steady for quite some time. Just because the USPS says it’ll announce its decision by late March doesn’t mean it actually will.
If you recall, it’s been postponed before. With Biden’s new EV push, it’s possible the agency further delays the announcement. As it continues to be possible for Workhorse to win this deal, this potential will remain priced into shares.
In addition to this keeping WKHS stock up at $30+ per share, the short-squeeze factors could help to keep it inflated as well. The overall “short-squeeze” saga may be over. Much of the 22% of outstanding float reported sold short as of Jan. 29 may have already been covered.
But as bears continue to unwind their positions, there could be sufficient buying demand to keep shares steady, even if we get news that the USPS contract decision will again be postponed.
Expect Workhorse to Hold Steady for Now
With Biden pushing for all-green federal vehicle fleets, it may seem like Workhorse has the USPS bid “in the bag.” But given that rival contenders could just as easily provide an all-electric option, those buying this on the Postal Service catalyst alone could end up “holding the bag” come decision day.
However, with the possibility of another postponement of the contract decision, combined with continued short-covering, WKHS stock could hold steady at today’s prices for longer than you think.
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.
