The hype surrounding EV (electric vehicle) stocks, plus Workhorse Group’s (NASDAQ:WKHS) own company-specific catalyst, helped to send WKHS stock “to the moon” from mid-2020 through early 2021. As you likely know, the name’s days as a “hot stock” are now in the past. After failing to win a large U.S. Postal Service (USPS) vehicle contract, many investors dropped the name like a hot potato, as they did not want to be left holding the bag.
Some investors, however, decided to continue to hold the shares. The reason is that, with 33.5% of its float being sold short at last check, the chances of Workhorse undergoing an epic short-squeeze looked very high. But so far that hasn’t really happened.
Based on the company’s fundamentals, there’s little reason to buy WKHS stock, as it trades at a valuation that’s far above its underlying value. However, as with other “meme stocks,” it’s not the company’s fundamentals that matter. Instead, going long this stock is a bet on the sentiment towards it flipping back to positive.
However, barring a positive development, such as progress with its drones (I’ll write more about that below), it’s hard to see how this name could excite the speculators again. Instead, in the months ahead, the shares could make the long trip back to about $2 per share, which was where they traded prior to getting inflated due to the EV bubble.
That being said, it’s understandable if you still want to roll the dice on this name. Just keep in mind that while a 100%+ gain may be possible, a nearly 80% loss may be in the cards as well.
WKHS Stock May Have a Shot at Bouncing Back
Since Workhorse lost the USPS Vehicle contract bid to Oshkosh (NYSE:OSK), why haven’t investors pushed WKHS stock back down yet to its pre-hype prices? The answer is simple: the company is down, but not out. Several catalysts could cause the shares to bounce.
Perhaps they won’t reach the $42.96 per share level that they hit back just before the firm lost the USPS bid. But more likely is a partial recovery that enables investors buying WKHS stock at today’s prices to generate a 100%+ gain in a short amount of time. Recently, I broke down several possible scenarios that could enable the stock to double amid a squeeze.
First, its protest of the USPS’s decision could make headway. Second, its HorseFly drone technology could be more successful than expected. Last month, InvestorPlace columnist Joseph Nograles explained that the shares could get a big lift if HorseFly is approved by the Federal Aviation Administration (FAA). Third, any sort of progress towards getting a private-sector electric truck order could cause the name to rally.
After former Delphi Technologies CEO Richard Dauch was recently appointed as the automaker’s CEO, the company may now have the experienced leadership it needs to get out of its current rut.
If any of these positive catalysts materialize, the shares may have room to rally 100%, or even more. But since the chances of that occurring are questionable, the shares could instead make a big move in the other direction.
Workhorse’s Risk Remains Massive
Many possible catalysts could cause a short squeeze in WKHS stock. But keep in mind that none of them is guaranteed to happen. And even the ones that are more probable may not happen in time to save the day for WKHS stock.
Many are still holding Workhorse in the hopes that its USPS protest will prevail. Unfortunately, the chances of that happening do not look so good. The fact that its new CEO hasn’t commented on this issue could tell you all you need to know. Its HorseFly drone platform could end up being the potential catalyst that delivers for WKHS stock. Yet while Workhorse applied for FAA approval of its drones last October, it may not come in time to prevent the shares from capitulating.
Dauch may be able to spearhead a successful turnaround. After he gets the company’s house in order, Workhorse may receive big orders for its electric delivery vehicles. However, that catalyst will likely play out over several years rather than several quarters.
If none of these potential catalysts come to fruition within the next few months, expect the investors still holding the stock to get impatient and sell it. As a result, the shares may dive sharply.
WKHS Stock Is Either Falling to $2 or Getting Squeezed to $20
Putting it simply, Workhorse’s stock is a gamble, so it’s best to approach the name accordingly.
A bit of positive news may be enough to send heavily-shorted WKHS stock up to $15 or even $20 per share. Just keep in mind that more disappointment could just as easily send it on its way back to $2 per share.
On the date of publication, Thomas Niel 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.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.