As the EV sector remains hot, should you buy Workhorse Group (NASDAQ:WKHS) stock? Rallying more than 400% so far this year, investors have started to hit the brakes. Reaching prices as high as $22.90 per share in early July, the electric-powered delivery truck maker’s shares have slipped down to around $16 per share.
It’s no surprise shares have fared so well in recent months. With speculators buying up anything remotely EV-related, smaller names like this one have seen gains that make the strong returns of Tesla (NASDAQ:TSLA) seem mild by comparison.
Yet, as those trading EV stocks on FOMO and momentum take profits, can this potential disruptor hold onto its recent gains? It’s debatable.
On one hand, the company has a strong catalyst on the horizon. I’m talking about the potential for the company to win a lucrative contract with the U.S. Postal Service (USPS). Add in the company’s stake in EV startup Lordstown Motors, and there may be more backing the Workhorse rally than just mere speculation.
On the other hand, like with rivals such as Nikola (NASDAQ:NKLA), it’s been promises, promises rather than tangible results driving shares. With minimal sales right now, this company has much to prove in the eyes of investors.
So, what’s the play here? Do you fade the recent rally, as shares trend lower? Or do you go long, as the USPS and Lordstown catalysts may put shares back into hyperdrive? It’s a tough call. But, given the potential for shares to rally substantially higher than cratering back to single-digits, a cautious buy today may be worthwhile.
WKHS Stock, Earnings, and USPS Catalyst
With this company still in startup mode, current earnings shouldn’t be a big deal. Yet, that didn’t stop Workhorse stock from selling off after its quarterly results release earlier this week. With losses for the period higher than expected, should investors be concerned?
Probably not. It’s the likelihood of potential needle-movers in motion that should be top of mind. Namely, whether the company can beat the odds, and win a multi-billion dollar deal with USPS.
As InvestorPlace’s Alex Sirois wrote Aug 5, Workhorse has long-shot odds to win the USPS Fleet Upgrade contract. Given that the company’s truck body partner dropped out of its bidding team, and larger truck makers are also in the running, it’s safe to say this company is not a top contender.
That doesn’t mean it’s all sizzle and no steak with Workhorse. Scoring small wins, like the partnership deal with Ryder (NYSE:R), the company is slowly building up its business. But, beyond the prospects for the company’s main operating business, there’s another asset on the books that could help drive shares higher.
I’m talking about the company’s 10% stake in Lordstown Motors. With that EV truck maker soon going public via a reverse merger, could it fuel a bounce back for WKHS stock?
Lordstown Motors Going Public
Lordstown Motors, formed just last year, gets its namesake from a shuttered auto plant it acquired from General Motors (NYSE:GM). GM is the largest investor in the company. But, Workhorse has had a major hand in the deal.
The company’s founder, Steve Burns, jumped ship to start Lordstown. Also, Workhorse licensed its pickup truck intellectual property in exchange for licensing fees, as well as a 10% equity interest.
And now, this privately-held startup is going public via a reverse merger with DiamondPeak (NASDAQ:DPHC). Similar to the way Nikola went public, Lordstown’s merger partner is a SPAC, or special purpose acquisition company.
Considering how well SPAC stocks like Nikola, DraftKings (NASDAQ:DKNG), and Virgin Galactic (NYSE:SPCE) have performed, could the same thing happen here?
It’s possible. Right now, its stake in Lordstown is worth around $160 million. But, if DPHC shares take off like other SPAC names post-merger, this stake could become worth many times more. Such a scenario could help put points into Workhorse shares.
On the other hand, what’s to say enthusiasm for SPAC stocks will continue? If interest in “SPAC-mania” cools off, this catalyst won’t do much to move this company’s shares higher.
Very Risky, But Workhorse May Be Worth It
With future potential, not current results, driving valuation, it seems risky to jump into Workhorse after its recent epic run. Yet, the potential upside from the company’s main catalysts (USPS contract win, Lordstown investment) may exceed the risk shares fall back to single-digits.
So, what’s the call right now? Consider WKHS stock a cautious buy. Don’t bet the ranch, but it’s still worth taking a chance with this story stock.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.