Weakness in Workhorse Group Is a Buying Opportunity

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The Postal Service contract delay is just a temporary setback for WKHS stock

One of the hottest investments in New Year 2021 will be in electric vehicle stocks, such as Workhorse Group (NASDAQ:WKHS) stock.

A Workhorse (WKHS) W-15 hybrid electric pickup truck on display at a branding event in Flatiron Plaza in New York.

Source: rblfmr / Shutterstock.com

For one, sales may only increase from here, as China, Europe and the U.S. push for a greener, EV future. California Gov. Gavin Newsom just signed an executive order that will ban the sale of gas-powered passenger cars in the state starting in 2035. Sales could increase even more under Biden administration push.

Plus, automakers like General Motors(NYSE:GM) are racing to produce far more EVs, as well. A good deal of analysts expect even more upside for the market, with the industry’s effort to deliver millions of these vehicles.

Granted, many of the EV stocks have skyrocketed recently. However, some, including Workhorse are offering us opportunities on pullbacks that don’t make a lot of sense. In fact, after finding strong support after a recent pullback, I strongly believe the WKHS stock could again test its $30 high.

Use Weakness in Workhorse Group As an Opportunity

As I noted on Dec. 4, “Weakness in the stock is a buy opportunity. While the USPS contract news is a short-term negative, it doesn’t mean Workhorse Group is out of the running.”

Again, the only reason WKHS is down is because of the Postal Service, which delayed awarding a contract for the second time. The first time the Postal Service delayed the contract was October. That delay pushed WKHS stock from a high of $30.59 to a low of $15.13.

Then, after recovering, the WKHS stock fell again on another Postal Service delay. Now the government expects to make its decision in the second fiscal quarter of 2021. In my opinion, the pullback is only temporary. The Postal Service hasn’t pulled the plug on Workhorse. All it did was delay the contract announcement. I’d use the pullback as a buy opportunity on what appears to be nothing more than an overreaction.

Even Oppenheimer analyst Colin Rusch sees opportunity. The analyst doesn’t believe the delay really changes the dynamics of the company winning at least a portion of the Postal Service contract. In fact, he said the company could be well-positioned to win a sizable portion of it.

Plus, remember, the company has industry validation with FedEx (NYSE:FDX) and United Parcel Service (NYSE:UPS). Going forward, the company could see even more big contracts, like these. The one we’re most hopeful for going forward is the multi-billion-dollar one from the Postal Service. Should that come through, this $2.53 billion stock could explode far beyond $30 a share.

An $18 Billion Last-Mile Delivery Market

Workhorse is a “market leader, first mover and only U.S. pure play OEM” in a last-mile delivery market valued at $18 billion.

In fact, as noted by my colleague, Luke Lango, “The last-mile delivery van market in the U.S. alone measures about $18 billion. That entire market will be electrified in the 2020s. If Workhorse can nab just 20% of the electric delivery van market and net out to 15% profit margins, then this is a potential $10-plus billion company in the making.”

In addition, according to the company, 350,000 last-mile delivery vehicles are bought by U.S. fleets every year.

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