It’s been a punishing correction for the shares of Workhorse Group (NASDAQ:WKHS). And the lethal surrender by bulls hasn’t been without cause. But can WKHS stock be reborn as a champion for investors or is euthanasia in the offing?
Let’s review what’s happening off and on the Workhorse price chart, then make a risk-adjusted determination aligned with those findings.
Think about WKHS stock in triple-crown terms. It was analogous to a thoroughbred bolting out of the starting gate in 2021. In January shares sprinted higher by nearly 74% on the month. And at their crowning glory, WKHS investors were sitting on gains of just north of 100%. The high-powered performance in Workhorse shares wasn’t without merit either.
WKHS was on a short list of companies vying to win a Next Generation Delivery Vehicles (NGDVs) contract with the U.S. Postal Service, valued at more than $6 billion over the next decade. Big deal? Yeah, it was.
Given the stock’s then mid-cap valuation of $5.0 billion and a deal capable of putting Workhorse’s vehicles’ rubber to the road in a truly meaningful and high-profile capacity, a win would have been a quick game-changer for an electric vehicle upstart which barely eked out revenue of $375,000 the prior year.
What’s more, Workhorse also appeared to hold the golden ticket over its competition.
WKHS Stock Favored to Win
Amid the new Biden administration’s push for U.S. sourced renewables and greener alternatives, WKHS stock was the only candidate offering an EV commercial van solution for the country’s mail carrier. And it’s why Workhorse became a favorite of investors who at times had the appearance of bettors at the racetrack.
The sure-thing, golden ticket of course, turned into a rip-up. Workhorse didn’t win the USPS deal and WKHS stock immediately suffered the consequences.
With the contract and its estimated 50,000 to 165,000 NGDV’s landing in the lap of Oshkosh (NYSE:OSK), WKHS’ peak market cap was immediately cut by more than half as shares plummeted 47% immediately after the disappointing news broke on Feb. 22.
Toss in broader, weak sentiment as Wall Street pivoted away from higher and no-multiple growth stocks during February and it’s little surprise Workhorse’s resident bear following managed to continue making hay into mid-May as shares hit a low of $7.07.
Yet today, and with short interest in the vicinity of 37% to 40%, are those bears betting on the wrong pony? It’s quite possible.
As InvestorPlace’s Louis Navellier recently opined, nobody is going to deny the USPS contract would have been a boon. But it’s also far from the end-all, say-all for Workhorse. WKHS stock isn’t dead.
For starters, Workhorse has proven EV delivery vehicles on the road. Remember that scant bit of revenue? The thing is WKHS isn’t just a concept, you can kick the tires of its fleet of C650 and C1000 today! The company also has a growing list of customers that’s already building on those sales and sufficient cash to see its way through today’s darkish-looking tunnel.
Lastly and mindfully, the market for emission-free commercial vans is a much larger prize than just the USPS deal. In fact, demand for EVs like Workhorse’s are more than double the government agency’s needs for the next decade. Moreover, that EV demand is happening inside a single year and appears poised for even greater growth.
WKHS Stock Monthly Price Chart
Source: Charts by TradingView
If investors are looking for a repeat in WKHS stock, the observation is it’s unlikely to happen. That year-ago rally that started with Workhorse shares priced around $2.50 a piece before hitting an all-time-high of $42.96 several months later? That was a once-in-a-lifetime performance. Still, I do see Workhorse as a longer-term play capable of generating solid returns over time.
Given a much-lower $2.0 billion valuation and for the positive reasons expressed above, a meaningful comeback can be entertained. And today, with a deep and well-supported bottoming pattern revealing itself on today’s price chart (above), WKHS stock can also be wagered on with increased odds of winning.
To be fair, much of this month’s bullish candlestick reversal can be attributed to some covering of positions from WKHS stock’s bearish short interest, as well as wishful action from bulls on word of legal action by Workhorse against the USPS.
Acknowledging those riskier factors in shares, if investors are willing to take a forward-looking price chart at its bullish face value, my advice would be to use a slightly out-of-the-money collar.
This type of position ensures less downside risk and a much larger profit profile if a rally takes hold. Also a benefit, any potential short contract exercise surprises are fully-hedged by the long stock. As much, there’s no need to act. The investor’s stock and short call are cashed out automatically for a quicker and maximized profit, while keeping a free bearish long put left in inventory as a side bet.
One favored combination of this type which also looks to fit in well with our expectations of what’s possible for WKHS stock going forward over the next few months is the October $17/$23 collar combination.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.