After the latest pullback, is it time to dive into Workhorse (NASDAQ:WKHS) or is it an funding it’s best to keep away from? With two probably game-changing catalysts round its belt, buyers had loads of purpose to be enthusiastic about this stock. However, with these catalysts already priced into shares, this electrical automobile (EV) play may be “too hot to touch” now.
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That’s to not say the stock is about to fall off a cliff. Removed from it. However, whereas the underlying prospects stay strong, shares might head decrease, as “EV mania” begins to chill.
How so? With the fast positive factors seen with Tesla (NASDAQ:TSLA), Nio (NYSE:NIO) and different main EV stocks, their valuations have gotten forward of themselves.
Sure, given the expansion potential of EVs, a premium is warranted. However, if Mr. Market abandons its “growth at any price” philosophy, and begins giving extra credence to valuation considerations, count on at the moment’s frothy multiples to contract.
The place does that go away Workhorse? Whereas its supply van enterprise, in addition to its curiosity in Lordstown Motors (extra beneath) may reside as much as expectations, this stock might peter out, or head decrease, from right here.
The Huge Potential Is Already Priced Into WKHS Stock
If there’s one factor Workhorse isn’t missing, it’s catalysts. In reality, the corporate has not one, however two main game-changers on its plate. Firstly, the corporate’s U.S. Postal Service (USPS) catalyst. As the one contender providing an electric-only automobile to exchange the Put up Workplace’s dated supply vans, the corporate might win all or a part of this profitable contract.
Secondly, take into account the corporate’s stake in Lordstown Motors (LMC). Quickly, the privately held firm goes public, through a merger with particular goal acquisition firm (SPAC) DiamondPeak (NASDAQ:DPHC). As soon as that occurs, Workhorse’s fairness curiosity (10%) might proceed rising in value.
But, everyone seems to be well-aware of those elements. That’s why Workhorse shares have soared a staggering 1,349% previously six months. After this epic rally, the aforementioned “needle movers” are greater than priced into shares.
Positive, that doesn’t imply shares can’t transfer greater. Like I stated above, “growth at any price” stays the secret. However, diving into the main points, there’s loads of purpose why these catalysts gained’t ship this stock parabolic but once more.
What do I imply? For starters, Workhorse isn’t the favourite to win the USPS contract. And, even when they do win, who’s to say it’ll be worthwhile? As our personal Laura Hoy wrote Oct. 2, the corporate might wind up shedding cash on the contract.
And the Lordstown catalyst? Positive, the underlying value of this “not-so-hidden asset” makes up a superb chunk of the corporate’s valuation. However, whereas Lordstown has sturdy prospects, Workhorse’s small curiosity may not be sufficient to maintain at the moment’s valuation.
Traders May Be Overestimating Lordstown Publicity
The USPS catalyst drove this yr’s preliminary pleasure for Workhorse. However its publicity to Lordstown is what helped transfer the needle currently. And, whereas that firm’s upcoming merger with DiamondPeak might create a windfall, who’s to say it’s sufficient to maintain at the moment’s valuation?
Traders may be placing an excessive amount of value in Workhorse’s Lordstown curiosity. Positive, the corporate’s stake and future licensing charges aren’t something to sneeze at. However, it’s not sufficient to justify the huge enhance on this firm’s market capitalization.
And, as InvestorPlace’s Ian Bezek wrote Oct. 1, there’s additionally the priority that LMC obtained one of the best a part of this enterprise, leaving Workhorse caught with the leftovers.
Given how far more of a “no-brainer” the bull case for Lordstown is versus Workhorse, I agree with this take. Specializing in a distinct segment within the EV market (work vans), fairly than making an attempt to be “the next Tesla,” LMC has a a lot clearer pathway to profitability.
Workhorse? The jury’s nonetheless out. Granted, there’s the prospect that the corporate wins all or a part of the USPS contract. And, whereas this deal may not worthwhile if the corporate wins the contracts, it might assist gas curiosity in its electrical vans from supply names like UPS (NYSE:UPS), FedEx (NYSE:FDX) and even Amazon (NASDAQ:AMZN).
However, for now, this stays a stretch-goal. At at the moment’s share price (roughly $24 per share), you’re betting it goes off with out a hitch.
It’s Fascinating, However Look Elsewhere for Now
Whereas I’m combined on the stock, I can’t deny Workhorse is an attention-grabbing scenario. However, with the stock’s epic efficiency to date this yr, its valuation has gotten out of hand. Positive, now we have but to see the “EV bubble” burst. However, it’s clear this summer time’s “EV mania” is beginning to cool off.
So, what’s the play right here? I don’t see shares crashing anytime quickly. However, I don’t see one other massive transfer greater, both. In case you are bullish on its prospects, look ahead to an enormous pullback earlier than leaping into Workhorse. In any other case, look elsewhere for a possibility.
On the date of publication, Thomas Niel didn’t (both immediately or not directly) maintain any positions within the securities talked about on this article.
Thomas Niel, contributor to InvestorPlace, has written single stock evaluation since 2016.
