Investors will conclude that Workhorse Group’s (NASDAQ:WKHS) strong rally from single-digit lows this year is irrational, but traders won’t overthink the strong gains from WKHS stock recently.
The clean energy and electric vehicle sector peaked in February. As prices fell to lows not seen since last year, speculators emerged to bet on the sector finding a bottom.
The speculation paid off.
Despite losing a bid to supply Workhorse trucks to the U.S. Postal Service, speculators are betting something will change the outcome.
Before Workhorse stock peaked at over $40 earlier this year and before the failed USPS deal, clean energy investors had very high hopes.
In 2018, industry website Electrek wrote about Workhorse’s $52,000 plug-in electric pickup truck. By January of this year, the media talked about Workhorse receiving over 6,000 electric delivery vehicle orders.
That set the stage for the company winning the USPS contract. After losing the bid, though, the stock fell sharply.
USPS and WKHS Stock
Recently, the company sued USPS claiming it was not given due consideration. It also accused the feds of being lukewarm on electric trucks. Unfortunately, the public has little to look at in Workhorse’s lawsuit.
It did not release any details on the vehicle prices, the product’s advantages, or any other data that might benefit its competitors. Instead, it cited the competitive process. It also shared little specifics on the USPS selection process in the statement.
Workhorse’s odds of winning the case are probably very low. The USPS prefers a fleet of clean energy and gas-powered vehicles for its reliability.
For example, it will not need to rely only on electric-powered vehicles that will need nearby power stations.
If re-fueling complicates its operations, the USPS will face higher costs. When demand for postal services is declining due to digitization, USPS cannot afford Workhorse’s proposed solution.
WKHS Stock Goes to Court
Investors that have experience investing in companies that sue their potential clients may buy WKHS shares.
If it wins its case, it would get a small compensation. Preferably, it would win a small portion of the contract. That would get its foot in the door. If it proved that the C650 and C1000 lightweight vans could do the job, Workhorse would win more customers.
Ford’s (NYSE:F) F-150 EV and inexpensive Maverick Pickup Hybrid announcements change the landscape.
The well-capitalized firm could commoditize delivery vehicles. At lower prices, Workhorse’s delivery vans will face a margin crunch. It is already producing low quantities.
Without mass production, Workhorse will operate at a cost disadvantage. Eventually, it will need to raise funds to offset losses. This would put pressure on shares.
Only two of the six analysts covering Workhorse have a “buy” rating. The average price target is $15.38, according to Tipranks. It’s trading just shy of $13 today.
EV investors may consider Lordstown Motors (NASDAQ:RIDE), but since the company is burning money, Workhorse may have a better chance of survival.
Ford stock almost doubled from 52-week lows but is a good alternative. The market reacted favorably to Ford’s electrification announcement.
Tesla’s (NASDAQ:TSLA) stock is recovering. The company did not say anything about its Cybertruck in the last year. Still, if Elon Musk renews his focus in the sector, Tesla shares may rally further.
Since most of Workhorse’s latest rally is based on hope, investors should exercise extra caution before speculating on this company. Sentiment often reverses quickly. When that happens, Workhorse will fall.
On the date of publication, Chris Lau 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.