Please ensure Javascript is enabled for purposes of website accessibility

Why Workhorse Stock Just Crashed 12%

By Rich Smith - Feb 2, 2021 at 11:56AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Robinhood trading restrictions may be to blame.

What happened

Shares of Workhorse Group (WKHS 1.99%), a start-up manufacturer of electric trucks whose stock has surged in hopes it's about to win a large contract from the U.S. Postal Service, is galloping in the wrong direction this morning. As of 11 a.m. EST, the stock is down 12%.

We know at least one reason why Workhorse Group stock has been going up -- but why is it now going down?

White arrow declining sharply against a red backdrop.

Image source: Getty Images.

So what

One possibility is WallStreetBets. Coincident with a huge surge in stock price at Workhorse last week was the WSB phenomenon that saw a mass of new investors on trading app Robinhood combine with stock boosters on the Reddit forum to push shares of heavily shorted stocks higher. Although not one of the most popular names cited by the Reddit users, Workhorse stock does have a very high short interest -- nearly 28%. It's entirely possible that WSB, therefore, was behind much of Workhorse's rise last week.

Now here's why that could be a problem today: Robinhood said late last week that it was limiting trading for certain stocks because it lacked the cash to meet deposit requirements imposed by its securities clearinghouse. And while Workhorse is not on Robinhood's latest list of five stocks subject to these limitations, it was reported on TheFly.com this morning that Workhorse stock still numbers among companies under unspecified "share and/or options contract restrictions."    

Conclusion: Workhorse stock may be going down because Robinhood is limiting investors' ability to bid it up.

Now what

Now here's the good news for folks who own Workhorse: Robinhood announced yesterday that it has secured $3.4 billion in financing "to invest in record customer growth, including $1 billion in funding announced on January 29." The company had previously explained that the trading restrictions it imposed were due to "deposit requirements" imposed by its securities clearinghouse.  

But if the company has now accumulated enough cash to meet its deposit requirements, it's possible that any trading restrictions currently imposed on Workhorse stock could be about to disappear. All else being equal, this should lessen downward pressure on the stock, and permit the stock to rise again.

That is, assuming it wins the USPS contract.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Workhorse Group Inc. Stock Quote
Workhorse Group Inc.
WKHS
$2.56 (1.99%) $0.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
322%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.