Based on its performance in recent days, QuantumScape’s (NYSE:QS) appeal as a possible short-squeeze play appears to be fading. The QS stock rally has lost momentum in recent days.
Nevertheless, you may believe that the QS rebound has yet to come to an end. Short squeeze buzz hasn’t been the only factor driving the electric vehicle battery technology company’s turbocharged rally this month. Improving investor sentiment for speculative growth stocks has played a role as well.
That said, even if the market’s renewed “risk-on” mentality continues and is not stopped in its tracks by further economic challenges, don’t assume QS is coming along for the ride. This stock’s poor fundamentals are likely to keep it stuck at rock-bottom prices.
| QS | QuantumScape’s | $7.93 |
QS Stock Has Different Problems
QuantumScape is of course one of the scores of promising early-stage companies that went public during the pandemic-era boom among growth stocks, but unlike most of the widely-followed names in this category, this company differs in one key way.
Take a look at most of the high-profile early-stage growth stocks. Examining their financials, you’ll see that, while perhaps lightyears away from profitability, they are at least making some progress in terms of advancing into the revenue stage. That’s not the case here with QuantumScape.
If you’ve been following QS stock, I’m sure you’ve read about the potential of this company’s solid-state battery technology.
This technology may just well enable it to one day build EV batteries that are safer, more efficient, and less expensive than the lithium-ion batteries currently used to power electric vehicles. However, taking this technology to the mass production stage remains a work in progress. So far, QS has only made it to the prototype stage.
As I have discussed previously, the company is not expected to start commercializing its technology until the mid-2020s, at the earliest. Hiccups and setbacks could further extend how long it takes to reach the commercialization stage.
Pre-Revenue Status Limits Rebound Potential
It may seem like singling out this startup for its pre-revenue status is a case of splitting hairs. However, this factor weighs heavily in terms of the recovery prospects for QS stock.
Inflation may keep cooling. Interest rate hikes could soon start to ease or perhaps even begin to reverse. At worst, there’s only a mild recession this year.
All of this may help shares in other early-stage companies to continue rallyingmin anticipation of improved operating results.
In the case of Quantumscape, though, even if the macro picture improves, this will not immediately result in improved fiscal results.
Barring any unforeseen progress in reaching the commercialization stage, there’s little on the horizon to recharge investor enthusiasm. In turn, QS could stay stuck at or near current prices.
Still, you may think that this isn’t the worst near-term forecast for shares. After all, doesn’t the prospect of “staying stuck” for an extended period imply one can build up a position and then profit when QS approaches commercialization a few years out? Not necessarily.
The Verdict
Although QuantumScape could theoretically deliver a middling performance over the next few years, lifting off again once it reaches the production stage, less favorable outcomes may be more likely.
The company could still fail to turn its technology into a commercially viable product. Or, QS could avoid such a “game over” moment, but end up not having enough cash to sustain further losses necessary to fund its move into the mass production stage.
Quantumscape could end up having to raise more capital, whether from its strategic partners like Volkswagen (OTCMKTS:VWAGY), or from the sale of additional shares in the public market. This may dilute existing shareholders, and limit the stock’s long-term upside potential.
With too many unknowns and questionable rebound prospects, whether or not the market fully goes back from “risk-off” to “risk-on,” avoiding QS stock remains the best move.
QS stock earns a D rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.