Much as I anticipated, QuantumScape (NYSE:QS) stock has lost charge over the past two months.
Surging ahead of earnings, then sinking following the earnings release, QS stock has since drifted back to the high single-digits.
While finding support at present price levels, don’t assume that the coast is clear to begin building a position in this electric vehicle battery startup. The latest round of hope and hype has faded, but the stock has yet to become oversold.
Even as it’s far cheaper today than it was at the height of the “EV Bubble,” QS continues to price in future success as a near-certainty, while failing to consider the effect of likely future dilution.
That’s not to say you should stay away indefinitely. However, that’s the right move to keep making in the near-term. Here’s why.
Back in a Slump
As has been the case for several months, company-specific news has not been the primary driver for the stock’s price action. Since the release of its last earnings report on Feb. 15, there has been little in the way of major news out of QuantumScape.
In fact, barring a disclosure of QS’s minute exposure to the collapse of SVB Financial’s (OTCMKTS:SIVBQ) Silicon Valley Bank subsidiary, and the scheduling of its next earnings release, there has been essentially zero news out there about QS stock.
No new milestones hit, no updates about its efforts to develop and commercialize solid-state battery technology. There haven’t even been any further announcements about partnerships with EV manufacturers. So then, with no definitive “bad news,” why has the stock re-entered a slump?
Shares have merely slumped in tandem with other EV and EV-related stocks, in particular those that are early stage and currently unprofitable. The market’s willingness to value these upstarts on future potential has kept waning, and these stocks have pulled back accordingly.
This has yet to ease, and if that’s bad enough, this factor could play a role in the market’s reaction to an upcoming company-specific event.
Why it May Continue
Post-market on April 26, QuantumScape will release its results for the quarter ending March 31, 2023. The company will also presumably provide operational updates, updates to guidance, as well as more details about its expected cash runway.
With so much information to be disseminated at this event, QS stock is very vulnerable to yet another post-earnings pullback. Given that sentiment for the EV sector hasn’t shifted back from “show me” to bullish, investors may view any bit of negative news as an excuse to sell.
The market could react negatively to what’s revealed in the upcoming earnings, such as higher-than-expected cash burn. Conversely, the market may react negatively to what’s not revealed, such as more details on the development of its SSB technology, or any further information about strategic partnerships with automakers.
I do not believe that a big plunge awaits QS at the end of this month. Shares could, however, experience a moderate price decline post-earnings. From there, the stock could continue to drift lower, perhaps even back down to its 52-week low (just over $5 per share).
As I have argued in past coverage, there’s a silver lining when it comes to this stock and its strong likelihood of continued underperformance in the foreseeable future. At some point, shares will likely reach low levels that make them favorable from a risk/return standpoint.
Of course, QS has yet to reach this point. Even a re-testing of its 52-week low may not signal the arrival of this event. Once we have more information about the amount of additional cash needs, we’ll have a better idea of the stock’s true present value.
Until then, however, the cautious move continues to be the best move with QS stock. There’s little risk in waiting to see where the chips fall where they may.
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.