Shares of electric delivery van maker Workhorse (NASDAQ:WKHS) have sprinted higher in 2020 on hopes that the company will win a big contract from the U.S. Postal Service, thereby laying the groundwork for the company to become the de facto leader in electric delivery vans throughout the 2020s. Workhorse stock is up almost 670% year-to-date.
As Workhorse stock has sprinted ever higher, many naysayers have emerged. All of them resort to the same two arguments. Workhorse is wildly overvalued and won’t win the USPS contract.
Not surprisingly, those two things go together. Indeed, if Workhorse doesn’t win the USPS contract, then WKHS stock is wildly overvalued today. After all, this is a $2.8 billion company that has done less than $1 million in sales so far this year.
But, Workhorse will all or most of the USPS contract. After winning that contract, Workhorse will cement itself as a leader in the electric delivery van space. More orders will roll in over the next few years from multiple other logistics companies looking to electrify their fleets amid rising geopolitical pressure to cut carbon emissions. And Workhorse’s revenues will soar from $1 million, to several billion dollars.
As all that happens, WKHS stock will power higher.
So forget the naysayers. Buy Workhorse stock on dips, and hold for the long haul.
Here’s a deeper look.
Workhorse Will Win the USPS Contract
The USPS has one of the largest delivery van fleets in America. That fleet is old, breaking down and built on antiquated internal combustion engine technology that legislators frown upon these days.
So, the massive logistics company is looking to upgrade its entire fleet, and soon.
USPS has consequently initiated an $8.1 billion contract to upgrade its delivery fleet. Workhorse is one of three finalists to win that contract. But, amid delays in the awarding of the contract, Wall Street has grown skeptical of Workhorse’s odds to indeed become USPS’ delivery van supplier.
Such skepticism is reasonable, but overstated.
When stacked up next to the other two finalists, Workhorse clearly stands out as the “best fit” for the USPS contract.
One of the other finalists, Karsan, is a Turkish-based company. It’s very unlikely that — amid the currently unstable geopolitical climate and with Covid-19 reminding us that global supply chains are fragile and subject to widespread disruption — USPS will rely on a company halfway across the globe to upgrade its entire delivery fleet.
Meanwhile, the other finalist, Oshkosh, is partnering with Ford (NYSE:F) to build a next-gen delivery van for the USPS. The Ford name here gives credence to this entry’s ability to scale production. But, the Ford-Oshkosh vehicle is built on an internal combustion engine. In today’s world where decarbonization is front-and-center, why would USPS go from old internal combustion cars, to new internal combustion cars? Doesn’t make sense.
And so, we have Workhorse. A U.S.-based company, with U.S.-based manufacturing, and a fully electric delivery van that is proven and already fielding purchase orders from other clients.
Almost without question, Workhorse is the undeniable best fit for the USPS contract.
Of course, that’s great news for WKHS stock.
Positioned for a Decade of Hypergrowth
Winning all or most of the USPS contract is a huge near-term deal for Workhorse. It will essentially guarantee the company billions of dollars of revenue over the next few years.
For a company set to do about $1 million in revenue this year, that’s a massive deal.
But, the long-term implications of a USPS contract win for Workhorse are much bigger than the near-term revenue injection.
In winning the USPS contract, Workhorse will cement itself as a viable leader in the electric delivery van market. At the same time, thanks to the partnership, Workhorse will likely be able to raise a ton of money at favorable terms to dramatically expand manufacturing capacity.
Thus, if Workhorse wins the USPS contract, this will be a company that, by 2025, will be a distinguished leader in making electric delivery vans with an unmatched ability to manufacture these vans.
Those are winning attributes which will likely attract many, many new customers to Workhorse over the next few years, as almost all logistics companies in the world follow USPS and electrify their fleets.
To that end, Workhorse winning the USPS contract optimally positions the electric delivery van maker for a decade of hypergrowth ahead.
Behind that decade of hypergrowth, WKHS stock will soar.
Bottom Line on WKHS Stock
At this point in time, Workhorse stock is a big, multi-year bet on the USPS contract. If Workhorse wins that contract, WKHS stock will soar for many years to come. If Workhorse loses that contract, WKHS stock will struggle for many years to come.
Right now, the weight of evidence strongly suggests that Workhorse will win part or all of the USPS contract. So long as that remains true, WKHS stock will remain a solid long-term investment.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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