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At a brief glance from a speculator’s point of view, Workhorse Group (WKHS) might seem like one of the bargains of the decade. For one thing, the company specializes in the ultra-relevant and burgeoning industry of electric vehicles. Not only that, Workhorse specifically targets the last-mile problem with its commercial fleet vehicles.
To quickly recap, the last-mile problem refers to the final and most difficult leg of a parcel’s journey: actually delivering it to the receiver (customer). Because of the expenses involved – especially with stop-and-go urban driving – it can be taxing on the bottom line. However, EVs may better address this problem, in part because their distinct properties enable far higher efficiency in city driving.
Unfortunately, much of the earlier sentiment for WKHS stock was tied to the assumption that it could win the U.S. Postal Service contract for replacing its aging mail carriers. Adding credence to this narrative was that Workhorse was the only pure-play EV solution. However, the company failed in its ambitions and WKHS really hasn’t looked the same since.
Fundamentally, I’m not really sure that much has changed. Still, investors seem enthused that WKHS stock could mount a comeback effort.
Options Traders Giving Another Chance for WKHS Stock
Against a broader context, WKHS stock appears a troubling prospect. Since the beginning of this year, shares plunged nearly 34%. Nevertheless, in the trailing five sessions, Workhorse managed to jump just under 23%. Could a resurgence be brewing for WKHS and other EV stocks?
It seems to be the case because other troubled EV companies also benefitted from the bullish surge. For WKHS stock specifically, it became a highlight in Barchart’s screener for unusual stock options volume. Following the close of the June 16 session, total volume reached 11,480 contracts against an open interest reading of 84,311.
Moreover, the delta between the Friday session volume and the trailing one-month average metric came out to 190.93%. Drilling down, call volume hit 10,939 contracts while put volume came out to only 541. This pairing yielded a put/call volume ratio of 0.05, on paper strongly favoring the bulls.
Moreover, MarketBeat – one of Barchart’s content partners – pointed out that WKHS stock may deserve the rising bullish interest in the underlying business. Essentially, after struggling to get back on track, Workhorse may finally be gaining traction.
True, the company didn’t necessarily enjoy a robust first quarter, delivering only 10 vehicles. However, as supply chain issues related to component delays improve, the current quarter should produce better results. Also, while Workhorse suffered a loss of $25 million in Q1, this result beat out analysts’ more pessimistic projections.
So, should contrarian investors take a stab at WKHS stock? It might be tempting as a short-term trade. However, Workhorse has a long way to go before it can convince conservative investors that it has the goods to succeed.
Economic Questions Might Sink Workhorse
On the financial front, viability remains a pressing issue for WKHS stock. As MarketBeat pointed out, Workhorse at the end of Q1 has only $79 million in cash on the books. In the year-ago quarter, the EV manufacturer had just over $167 million.
Further, its free cash flow in Q1 of this year came out to a loss of just over $38 million. One year ago, the FCF tally incurred a loss of $34.3 million. We’re moving in the wrong direction. Put another way, the future quarters must be outstanding for investors to trust a fading enterprise.
Another issue regarding WKHS stock centers on its meme-like quality. According to data from Fintel, WKHS has a short interest of 25.38% of its float. That’s fairly steep, which may attract speculators. However, once retail traders get tired of playing with their flavors of the week, the target entities may be liable for collapsing in the charts.
Arguably most significantly, WKHS stock must climb a wall of economic anxieties. On surface level, investors might not see issues with rising sentiment for Workhorse and other speculative EV stocks. After all, the May jobs report came in much hotter than anticipated. Also, the Federal Reserve noted that it sees encouraging progress on the inflation front.
However, it’s the “why” that matters. In the latest jobs report, the average work week length and the pace of wage growth both declined. As well, it took jobseekers more time to land a position. Broadly, this framework implies that employers are not as gung-ho about expanding.
By logical deduction, if they’re not as keen on expanding, then they might have the same attitude about upgrading their commercial fleets to EVs – particularly EVs from a struggling startup. So, if you’re going to play with WKHS stock, you should do so with a short-term time horizon in mind. Further out, Workhorse still remains wildly speculative.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
