Precisely one week after joining Workhorse (NASDAQ:WKHS) as the company’s new CEO, Rick Dauch gave his first earnings call. Unfortunately, the numbers are mostly forgettable. However, if you own WKHS stock, Dauch’s hiring by the board can only be viewed as one heck of a Hail Mary pass.
If Dauch succeeds, he’ll be a competent automotive executive fixing what ails the electric delivery-van maker. However, this is where the rubber meets the road. If Dauch can’t fix Workhorse, the game will most certainly be over for WKHS stock.
WKHS Stock Worth Betting on in High Teens
I seem to have a soft spot for Workhorse. Maybe it’s the fact it had the cojones to go up against Oshkosh (NYSE:OSK), the Wisconsin specialty truck maker, for a piece of the United States Postal Service’s multi-billion dollar contract to replace its aging postal trucks.
That’s a David and Goliath story for several reasons.
We all know how it turned out. Badly. So badly, Workhorse filed a formal complaint with the U.S. Federal Court of Claims in mid-June regarding the awarding of the contract to Oshkosh.
The loss of the contract really killed any momentum Workhorse’s stock might have had going into the contract award. It fell 52% in two days of trading after Oshkosh took home the big prize. Yet, even after the big drop in February, it managed to avoid single digits for another three months before closing at $9.61 on May 6. Then it rallied to double digits in June and avoided closing at a single digit price until Aug. 11.
This is one resilient stock.
The Odds Are Against It
If you’re thinking of buying its stock at current prices — in the last five trading sessions, it’s up 4% — there are two things you need to remember when entering your position.
First, this is a speculative buy for aggressive investors only. Secondly, any more production delays will most certainly knock its share price into the mid-teens, perhaps lower. Thus, while Dauch’s hiring provides hope, the odds of its long-term success remain iffy, to say the least.
As my InvestorPlace colleague, Brett Kenwell, stated recently, Workhorse faces a “plethora of competition.” I discussed that competition in January, suggesting that WKHS stock would get a lot more volatile in 2021. Unfortunately, I had no idea just how volatile.
“The EV600 will have 600 cubic feet of cargo space and a range of 250 miles, making first-mile last-mile deliveries a cinch,” I wrote on Jan. 19 about General Motors’ (NYSE:GM) new division, BrightDrop.
“Needless to say, knowing what we do today about BrightDrop, it’s easy to see why GM walked away from Nikola. I continue to maintain that the real money in the electrification game, at least in the near term, will be for commercial rather than personal vehicles.”
My opinion on this stands. The real money in the next 24 to 36 months remains in the commercial space. GM stock is up 19% year-to-date, despite the chip shortage, which is considerably better than Workhorse’s 52% decline.
The risk-averse investor should continue to play the electrification of commercial fleets through companies like GM.
On the one hand, the odds are stacked against it. On the other hand, I’d be a lot more concerned if Workhorse were just another electric vehicle startup. As Dauch said in the conference call, it has real-time data of its vehicles working in the real world.
That ought to count for something.
The Bottom Line on WKHS Stock
As part of Rick Dauch’s employment agreement with Workhorse, the CEO’s signing bonus included 500,000 restricted shares and $3 million in stock options that will vest over three years.
In addition, as part of its Long Term Incentive Plan, Dauch was awarded 250,000 restricted shares for 2021, vesting every six months over three years, and 250,000 restricted shares based on performance metrics to be determined by the board’s Compensation Committee and Dauch by the beginning of November.
The CEO will be eligible for up to $5 million in stock awards and stock options in each subsequent year. So, conservatively, a job well done by Dauch could be worth as much as $100 million or more down the line. That’s incentive enough to want to make Workhorse a success.
Will he do it? That’s not for me to say.
What I do know is that the board has planted its flag with Rick Dauch. It’s his to win or lose. At this point, I’d put the odds at 50/50, which is a lot better than before his hiring.
I like the move a lot, but it might be a case of too little too late. I hope not, though, because I’ve taken a shine to this company.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.