Stock Market

Quantumscape (NYSE:QS) shares have made some whipsaw moves over the past few trading days. Ahead of its latest quarterly results on Feb. 15, QS stock surged by nearly 32.3%, only to plunge by 17.2% the following trading day. Still, it’s up more than 90% on the year.

It’s not a mystery as to why this has happened. There is one key reason that explains why shares in this early-stage electric vehicle battery developer have made such erratic moves over the past week.

The company is still far away from reaching its next big milestone. Market conditions will likely decide whether the stock rallies from here, or continues to pull back.

So, knowing full well the fashion in which QS will likely perform in the near term, is it a buy, or is it a sell? Put simply, it depends. With this, let’s dive in, and see if shares are a fit for your portfolio.

QS Quantumscape $10.38

Why QS Stock Zig-Zagged Before and After Earnings

With Quantumscape’s rapid-fire surge/sink before and after earnings, you may be wondering what came out in the company’s latest results and updates to guidance. Admittedly, with the exception of reporting a lower-than-expected net loss for the December quarter, there were few surprises with the results.

In terms of guidance, the company did indicate that it is making cost-reduction efforts that will extend the runway of its existing cash position from the end of 2024 to mid-2025. However, while a promising sign with regards to dilution risk, this also isn’t a real big game changer.

So, given the mixed nature of its latest report, why exactly has QS stock traded so wildly during this earnings week? Most likely, it has to do with the stock’s high short interest. According to Fintel.io, on Feb. 15, around 21.2% of QS’s outstanding float was sold short.

Uncertain how the latest news would shake out, it’s possible that short sellers unwound positions ahead of the report. In turn, speculators dived in, hoping to cause a short squeeze. With few changes to Quantumscape’s “story” revealed in the latest earnings report, shares sold off almost as quickly as they spiked.

How Shares Could Perform From Here

Following the initial post-earnings plunge, fair-weather fans of QS stock who bought in during the spike could continue to bail. As I mentioned above, however, in the months ahead, shares are likely to move in the same direction as the overall market.

If macro-related worries continue to calm down, the stock could continue to trend higher, as speculative growth stocks keep coming back into favor. If macro-related worries intensify again, QS could re-test its 52-week low ($5.11 per share), or even hit new lows.

That said, there could be a few more erratic price moves for Quantumscape along the way. With enough cash to keep the lights on for another two and a half years, short sellers wagering on a “game over” moment for the company may continue to unwind positions. A major liftoff moment for QS, though, may take time to arrive.

The company is still in the prototype stage with its solid-state lithium EV battery technology. It’s unclear when Quantumscape will hit its next big milestone (moving to the production stage). Analysts anticipate material revenues ($300 million) starting in 2026, but the company continues to avoid providing investors with a concrete commercialization timeline.

The Best Move Today With Quantumscape

The decision to buy or hold onto a position in QS depends on two things.

First, whether you are confident that macro issues like inflation and interest rates will clear up in 2023. This will pave the way for riskier stocks such as this one to continue climbing back toward prior price levels.

Second, the decision to buy or to sell/avoid hinges on your confidence in Quantumscape ultimately commercializing its technology. At some point, it needs to deliver the goods, or else its valuation ($4.3 billion market cap), which is based solely on its future potential, will evaporate.

However, even if you are confident that the bull market will soon return, and the company will keep moving toward the production stage you may want to skip out on QS stock. Instead, growth stocks with fewer uncertainties, but similar upside potential, may make for better choices.

On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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