The last time I weighed in on Workhorse Group (NASDAQ:WKHS), I said, “After finding strong support after a recent pullback, I strongly believe the WKHS stock could again test its $30 high.” That was on Dec. 11, as the WKHS stock traded around $21.
Not long after, the stock was up to $42.10. All on hopes Workhorse could win part of the USPS $6 billion contract. That didn’t happen, though. Instead, USPS awarded the contract to another company, and we got to watch the stock gap to a low of $12.50.
While the loss of the USPS contract put a fat dent in the stock, there’s another strong catalyst around the corner.
Don’t Count the WKHS Stock Out Just Yet
One, B. Riley analyst Christopher Souther just initiated a buy rating on the stock with a $20 target. “Riley argues that the company’s delivery vehicle will beat most of the competition to market, and its large cargo area makes it an attractive option for a lot of potential customers,” as noted by Motley Fool contributor Lou Whiteman.
Two, we also have to remember President Biden wants to electrify the federal fleet of 645,000 vehicles. While there’s no timeline for doing so, Biden did ask for $300 million to begin electrifying the fleet in a spending proposal. Biden also asked for “$8 billion in Energy Department funding, a 27% increase over the current year, to advance clean energy research, a portion of which would go toward electric vehicles,” as noted by Detroit Free Press contributor Todd Spangler.
Three, the company could also see massive opportunity with electric delivery vehicles. In fact, with growing global commitments for zero-emission vehicles, the market could balloon to $96.85 billion by 2023 from $48.54 in 2019.
In short, investors may want to use weakness as an opportunity.
Workhorse Group Seems to Be Fine Without USPS
The company has more than $200 million in cash, with more than 8,000 vehicles in its backlog. In its fourth quarter, sales were up to $652,000 from $3,000 year over year. Net income came in at $280.5 million from $655,000 year over year, as well. For the full year, sales were up to $1.4 million from $377,000 year over year. In addition, net income came in at $69.8 million for 2020 from a net loss of $37.2 million year over year.
Also, as I noted on Dec. 11, Workhorse is a “market leader, first mover and only U.S. pure play OEM” in a last-mile delivery market valued at $18 billion. Plus, according to the company’s investor deck, more than 350,000 last-mile delivery vehicles are bought by U.S. fleets annually.
Even without the USPS contract, Workhorse seems to be doing just fine. When the company posts first quarter earnings on May 10, I expect to see further improvement.
The Bottom Line on Workhorse Group Stock
I’d use weakness as an opportunity to buy the WKHS stock at current prices.
After gapping down on the USPS news, WKHS appears to have bottomed out. Plus, it appears Workhorse still has plenty of solid potential catalysts ahead of it. For one, President Biden wants to electrify a federal fleet of 645,000 vehicles. Two, Biden wants to fund an all-electric future.
Three, Workhorse’s cash position and earnings have been solid with year over year growth. Plus, the company is exposed to a potential $18 billion last mile delivery market. Helping, B. Riley analyst Christopher Souther just initiated a buy rating on the stock with a $20 target.
From a current price of $12.95, I’d like to see an initial test of $20 a share. Longer-term, I’d like to see WKHS retest $42.50 – with patience.
On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999.