Workhorse Group (WKHS) was already poised for a rally as the electric vehicle company slowly built up an order book in the last-mile delivery van sector. The heavily shorted stock got an extra boost in the last week as the WallStreetBets community on Reddit targeted the hedge funds shorting the stock.
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Even now, at $4.3 billion market cap, Workhorse doesn’t have the massive valuation of other EV stocks. The stock could easily have more upside with or without shorts being forced to cover due to President Biden’s EV plan.
Short Hedge Fund Attack
Workhorse entered the prior week with over 20% of the outstanding share float short. The combination of WallStreetBets attacking hedge funds with heavy short positions and the excitement surrounding EVs with Democrats now in charge of the U.S. government sent the stock up over 50% in the last week.
ShortSqueeze lists nearly 34 million shares still short on Workhorse with 120 million shares outstanding. The shorts were somewhat let off the hook as popular brokerage sites such as Robinhood placed limits on buying the stock possibly reducing the upside squeeze.
Stocks on the short hedge fund attack list such as GameStop and AMC have risen multiples of the gains of Workhorse. Yet, Workhorse likely has a less risky profile as delivery van EVs have a far better future than retail stores selling games and movie theaters.
Biden Plan
Last week, President Biden reinforced a plan to replace all federal vehicle fleets with EVs. His plans to advance EV manufacturing and increase EV charging stations fits right into the goal for Workhorse to land a large contract with the USPS for EV delivery vans.
The USPS has long worked with Workhorse on developing a workable mail delivery van. In total, the government mail service had plans to purchase up to 180,000 delivery vans over the next five to seven years with the Biden plan likely pushing these plans full speed ahead.
The only real question is whether Workhorse grabs a large portion of the contract considering their general lack of manufacturing capabilities. The EV manufacturer only forecast delivering 1,800 EVs in 2021. The company has a lot of work to get manufacturing up to levels necessary to fulfill USPS demand plus other customers.
The upside potential from a large USPS order alone questions whether the rise last week was even related to WallStreetBets. A multi-billion deal from the USPS would far outweigh the benefit of any attack on shorts.
Takeaway
The key investor takeaway is that Workhorse now offers multiple catalysts to push the stock even higher. The main investor focus should be on the $18 billion market opportunity in last-mile EV delivery vans. The secondary focus for the next few weeks is how the attack on shorts plays out.
The stock has a market value below $5 billion, while a lot of other EV manufacturers trade at multiples of these valuations. Workhorse is likely headed higher one way or another as shorts were already playing a dangerous game and they were unlikely to win.
Meanwhile, Wall Street analysts have a lot of ‘catch-up’ to do. Workhorse’s recent share price surge has pushed the stock well above the average price target, faster than analysts have been able to react. WKHS’ Moderate Buy consensus rating is based on diverse views, including 3 Buys and 2 Holds. (See WKHS stock analysis on TipRanks)
Disclosure: No position.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
