Reddit traders ride a Workhorse - InvestingChannel

Reddit traders ride a Workhorse

Workhorse Group (WKHS) delivered exactly six trucks last quarter.

I saw more trucks in my cul-de-sac yesterday.

Still, they made money. And that’s more than a lot of these electric vehicle makers can say.

But that’s not why shares jumped nearly 50%.

That, dear friends, is thanks to the Reddit crowd.

And it’s why our TrackstarIQ Data showed pageviews among institutional advisors and retail traders skyrocket.

What most of us want to know is whether this rally has legs.

And more importantly, where can we make money.

The long and the short of it

We’ve talked a lot about ‘short squeezes.’

As a refresher, stocks with high short-interest lead to what’s known as a short squeeze.

You see, shorts borrow shares from their broker to sell them on the open market. Later, they buy those shares back and give them back to the broker.

As long as the stock goes down they make money.

However, the higher a stock goes, the greater the losses.

And stocks can often go much higher than most realize or remain solvent.

Eventually, brokers issue a margin call, telling the client to close out their positions to stop the bleeding.

This forces them to buy back shares to close out the trade, exacerbating current buying pressure.

Workhorse has one of the highest percentages of shares sold short at over 40%, more than AMC or Gamestop (GME).

In normal markets (like before the Reddit crowd), this was common for companies investors expected to go bankrupt.

They would short stocks like Bed Bath and Beyond (BBBY) or Gamestop.

It was a dangerous game because one bit of good news could create a cascade of buying.

Ok, so where is there an opportunity?

Ironically, Workhorse may not be a bad place to start. 

We’ve discussed how few of the ‘EV’ companies actually generate revenue.

And though half a million isn’t much, it’s more than zero.

The company expects to produce 1,000 trucks in 2021, down from its previous forecast of 1,800. 

In reality, the company needs to improve production and sign new deals.

Given the recent price action, any new deal announcement could send shares soaring.

The only real criteria for these massive movements is a high short float.

And these are the top names out there (with decent volume):

  • Blink Charging Co. (BLNK) – 35.8% short float
  • Bed Bath and Beyond (BBBY) – 31.8% short float
  • Clovis Oncology Inc. (CLVS) – 30.9% short float

Our hot take

None of these companies look particularly great in the long term. 

But all you really need to get the big moves is high short float.

And these stocks have that in spades.

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