I write today’s note knowing that I may ruffle a few feathers. Therefore, I want to open up by saying that I truly hope that Workhorse (NASDAQ:WKHS) survives its latest setback. I am pulling for the bulls but I have my reservations on its prospects. Company stocks don’t just die from losing one order. WKHS stock should have made progress from the February crash by now.
I will quickly rip the band-aid and offer my conclusion first. WKHS stock is broken and not a blind buy just because it’s fallen 70%. It can even be single digits within a month. Only management can save it with a miracle headline.
However, hope is not a strategy. This is coming from someone who wrote about the upside potential from last summer.
The good news is that the eager fans only need a nudge to hit the BUY button again.
The 2021 Bash Didn’t Last
The real battle over Workhorse stock started about a year ago. Since then it has had many reasons to celebrate. However, the party ended about two months ago.
Today we will look into the viability of the upside bets. By now everyone is familiar with the explosion in SPACs last year. This was especially true in the electric vehicle market. After Tesla (NASDAQ:TSLA) succeeded in creating mainstream demand for EVs, many now want a piece of the action.
The road for success for Tesla was not easy. Up until recently, the experts had called it dead. Now it is the King of the Hill and everybody else is chasing it. This includes legacy automakers like General Motors (NYSE:GM) and Volkswagen (OCTMKTS:VWAGY).
WKHS stock caught the interest of the retail investors last summer. We had an onslaught of new traders who tend to use social media for trade ideas, not actual homework.
In addition, the shenanigans from the GameStop (NYSE:GME) mess added fuel to all the speculative EV stock fire. Not many were paying attention to actual fundamentals. It didn’t matter what was realistic as long as the stock ticker was trending.
WKHS Stock Is Now Broken
Unfortunately for Workhorse stock owners, the trend recently went wrong in a big way. Those who are now stuck from the high of $42 per share are hoping it finds support soon. Again, here is the hope strategy again. Chasing stocks into the stratosphere is fraught with danger. Those who did it in early February had two previews of the dangers. In September, WKHS stock fell 50%, and in November it fell 30%. This crash is bigger than both of them and has yet to show any signs of stabilization.
The stock spiked on Friday but it has failed to hold its greens. The disappointment of losing the postal order broke the stock. Fans of it were hoping they would win that contract but it went to Oshkosh (NYSE:OSK) instead. If Workhorse had a strong strategy, it should shrug the loss of one order, regardless of its size.
Onus on Management to Help the Investors
I can accept the investors throwing a fit for a few days. But this long after the event and they’re still making lower lows is concerning. The problem with speculative stocks like this is the lack of fundamentals to support it on bad days. In this case, the technicals on the chart failed, and there is no help from the story line.
Nevertheless, kudos to the fans of it for their level of conviction. I know this from my debates with them on social media. They express their strong opinions in the comment section of my videos of WKHS stock. Management owes them a reason to fall back in love with it. Until then, the right thing to do is stop adding to positions and fade the pops. Don’t confuse this with a recommendation to short it, though.
This is not a healthy business yet. The stock price is entirely for hope of future successes. This falling machete needs to hit the ground before investors should pick it up safely. A trend of lower lows and lower highs is not it. The next earnings report conference call will be very important and it is coming soon.
Overhead Resistance From Last Year
Technically, the long consolidation period from last year is now above current price. That is a lot of overhead resistance to slice back through in a recovery rally. The bulls will have their work cut out for them when that happens. Those who are with losses would do well to consider getting out on spikes. This is not an appropriate stock for an average down strategy.
There is a little ray of sunshine in the tiny higher-low trend from the bottom on April 15. It could be a small base for stabilization. But any breach of that would create another leg lower. If that happens, the $8 battle from June of 2020 may come back into play.
The biggest hurdle above starts at $14 per share, and intensifies at $16 per share. In order for WKHS stock to exceed $18 per share, it will need a massive headline. In this new era of investing, if Workhorse stock fans want an ally they have the best one in ARK Invest. They even added WKHS stock to their positions yesterday.
ARK’s success with Tesla gained them instant kudos in the investment community. This is more true on the retail side than Wall Street. I would caution against blindly buying it for that reason alone. There are no signs of miracle recoveries. Buying a stock for a surprise headline is not a viable strategy. This is what people do at the roulette table.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.