DJ Workhorse Stock Jumps Again, and Short Sellers Could Be Caught Up in It -- Barrons.com

By Al Root

Stock in commercial electric-van maker Workhorse was flying for a second consecutive day Monday. This time, a bond deal seems to have been the spark, and it might be that short sellers can't take the pain.

Workhorse shares (ticker: WKHS) were up 6% in midday trading Monday after the company said it is raising $200 million by selling convertible bonds, which can be converted into common stock at $36.14 a share. Earlier in the year, Workhorse raised $70 million in a convertible-bond sale. That issue was convertible into common stock at $19. The existing convertible holders are exchanging their bonds for the new issue.

Investors are excited, presumably, because it means Workhorse won't have to offer common stock to meet its growth goals. The company will have about $270 million in cash when the deal closes later this week.

This new convertible issue also pushes out the maturity profile of Workhorse debt. The original convertibles were due in 2023. The new ones are due in 2024. That is another small benefit to the company.

"With this financing in place, we can more quickly advance our production efforts," CEO Duane Hughes said in the company's news release. "We can also accelerate our production timeline for new, high-demand customer products, including a refrigeration truck for grocery applications as well as a purpose-built class 2 delivery van."

Workhorse's flagship product, which began shipping recently, is an all-electric delivery van with 1,000 cubic feet of capacity, similar in size to a FedEx (FDX) delivery vehicle.

Workhorse just started delivering those and has a lot of irons in the fire. Shares rose almost 13% on Friday after Roth Capital analyst Craig Irwin said a U.S. Postal Service decision was expected soon on replacing thousands of its delivery vehicles. Workhorse is among the companies bidding for the contract and it is the only all-EV option being considered. Irwin thinks the chances are high Workhorse wins.

Still, the stock's rise on these bits of news is surprising, and a short squeeze might be at play. Almost 23 million shares of Workhorse have been borrowed and sold by bearish investors betting on price declines. That amounts to almost 25% of the stock outstanding, many times more the average short interest of stocks in the either the S&P 500 or the Dow Jones Industrial Average.

It is also possible some of the short selling is tied to the convertible bonds. Convertible bonds convert into common stock giving bondholders some exposure to the stock price, which they may or may not want. But there is too much short selling going on for convertible bonds to account for all of it. And short interest started increasing after Workhorse stock started to trade higher around June.

Workhorse shares are up 870% year to date and 1,089% since the end of May. That gain may have attracted the short sellers. Workhorse doesn't have significant sales yet and the surge coincided with increased interest in electric-vehicle stocks.

EV stocks Barron's tracks, including Workhorse, are up about 380% year to date on average.

Wall Street overall isn't in the skeptics' camp. Four out of five analysts covering the company rate shares Buy. Barron's also recently wrote positively about Workhorse stock, believing the company had carved out an interesting niche in all-electric commercial delivery vans. The gains are nice, but we didn't see shares rising this far this fast.

Looking ahead, the USPS decision looms large. The company will likely have to win to keep stock momentum high.

Write to Al Root at allen.root@dowjones.com

(END) Dow Jones Newswires

October 12, 2020 12:30 ET (16:30 GMT)

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