The write up today is causing me a bit of grief because I started out as an electrical engineer. Technology is in my blood and I’m always rooting for new ones to come out. Workhorse (NASDAQ:WKHS) is part of an electric vehicle (EV) revolution that is sweeping the world. I should be cheering for them but I find myself a bit of a skeptic. Therein lies the source of my grief. WKHS stock doesn’t need my approval though because it has soared of late.
My apprehension comes from the sheer number of EV companies trying to lay a claim to this new frontier. They are definitely whirring through Wall Street, but not all of they will make it to Main Street. EV tech needs topple over the internal combustion engine (ICE) and that won’t be easy. The ratio of ICE to EV is still more than 90% but that’s the exciting part. The addressable market for EVs is therefore huge. The fight got more serious as General Motors (NYSE:GM) announced yesterday that they will end production of gas vehicles by 2035.
Meanwhile WKHS stock is electrified these days and it has very devoted fans. They won’t take their foot off the pedal with buying shares anytime soon. I can attest to that from reading the comments of the videos I’ve published on YouTube for it. Those who believe in the Workhorse have great conviction and that will lend support to the stock.
Management Seems on Point
I am more of a show-me don’t-tell-me person. Reading through the materials on their website it seems that management is lining itself up properly for the future. Tesla (NASDAQ:TSLA) opened the door from the standpoint of EV acceptance, the rest are plowing through. This makes it easier for WKHS stock to succeed in the long run. Moreover the company also owns an equity stake in Lordstown Motors (NASDAQ:RIDE), which is doing good things on its end. Therefore Workhorse has two at-bat opportunities.
The trucks themselves are not the prettiest things but that is subjective. They definitely are not as slick looking as the ones we see from Tesla and Nikola (NASDAQ:NKLA). But I will take function over form any day on that front. What I don’t like is vaporware to borrow a term from the old software industry. Workhorse has purchase orders for thousands of vehicles. Their goal is to produce as many as 1,800 of them this year.
Their operations suffered setbacks last year from the novel coronavirus, but then again whose didn’t. This is not a reason to give up on them but it may have broken the momentum a little bit. I won’t judge them harshly if they miss the mark on production. The important part is to start the process and show a trend.
Speaking of trends, WKHS stock burst onto the scene last July. It spent the rest of the year consolidating in a very wide range. This is important because this month the bulls busted out from said range above $28. The job for them now is to hold above $30 per share as they fade the pop. It is OK for the stock to revisit the breakout neckline but not much lower. This is not a hard line in the sand because it’s more of a region.
When a stock consolidates long enough it builds a base to serve as a platform for more upside in the future. The buyers are in charge and shorting it this early in this process is ridiculous. Conversely, up at these altitudes it is not an obvious point of entry. Buying WKHS stock now means that the intention is to hold it for years to come. That is a viable thesis and depends entirely on personal time frames.
WKHS Stock Is in Breakout But There Are Outside Risks
Someone looking to add new stock should really wait for a dip closer to the necklines from which it just broke out. There’s also the matter of the prism of the entire market. The risk to this stock can come from outside. All stocks have to trade inside what’s going on in the collective. The indices are still near all-time highs and they’ve had very few red days. We don’t know yet if what happened Wednesday is going to build a negative trend.
It is not entirely crazy to expect a small correction on Wall Street. Should this happen it will affect all stocks including this one negatively. Again it comes down to time frames and if I am a long-term investor I shouldn’t sweat these dips. I do want to caution about the concept of averaging down in stocks. Generally it’s a decent idea but I never do it in a speculative equity like this one. I call it speculative because the entire stock price is made up of its future success. They barely have any sales now or any product for that matter.
If I choose to risk money investing in WKHS stock I should not add to that amount. But if I insist on doing it, I should at least wait for a big differential between entries. If things go South and I had bought shares $34, I probably shouldn’t add if and until it hits $22.
The world has seen an explosion of EV suppliers and most of them will fail. This one seems to have enough alliances and finances to make something out of itself.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.