QuantumScape (NYSE:QS) is a pre-market technology company working on the next generation of batteries. Since its listing a year ago via a reverse merger with SPAC Kensington Capital Acquisition, QS’s stock has more than doubled in value.
Its solid-state technology could allow electric car drivers to enjoy longer ranges and faster charge times, making them even more attractive as an option in this increasingly green world in which we live.
At the height of the electric vehicle (EV) craze last year, QS stock closed at $ 131.67 on December 22, 2020.
As of this writing, the stock is changing hands for just over $ 25. However, before you go ahead and add more to your portfolio, a word of warning.
QuantumScape has missed earnings estimates in three of the past four quarters. More recently, the company managed to make a surprise profit. The accounting gain is the result of changes in the fair value of liabilities related to share subscription warrants. Seeing the market reaction, it seems investors have absorbed this information, and they are not impressed.
Meanwhile, the S&P 500 Index and the Dow Jones Industrial Average reach new records. October has historically been a bad month for the markets, with its history of frightening crashes, notably in 1929 and 1987, which are still vivid memories for many investors today.
Although we have cleared this hurdle, the feeling that the markets are overdrive is real.
The recent rise in stocks has raised concerns among many that there will be a correction soon. That would mean prices would drop 10% from their highs, which had not happened since 2020, when lockdowns led to bear markets and steep declines of over 20%.
Since QS is a growth stock, it could be squashed in a larger correction.
Weakness means now is the time to buy QS stocks
Much to everyone’s surprise, QuantumScape managed to post a profit in its third quarter financial results. This was due to an accounting change in the fair value of the liabilities related to the share purchase warrants. However, despite the profits, QS’s share price took a hard hit.
To make sense of this move, you need to understand that investors are looking for updates for its batteries more than earnings numbers.
QuantumScape believes it can revolutionize the way we think about electric vehicles. Its technology promises the world of tomorrow in a battery that won’t give up. The company is breaking new ground with its solid state lithium anode batteries – no liquid is needed for electrons to move freely.
This means better range and safety of electric vehicles as well as faster charging times, all at a lower cost. His pioneering position is the reason he has top funders like Bill Gates and Volkswagen (OTCMKTS:VWAGY).
The company’s shares have been doing well since July 27, when management released second quarter results. QS stock has increased by around 20% during this time, mainly due to excellent battery test results.
The markets appreciate these updates and if you want to trade or invest in it, it is essential to schedule your exits and entries in the press releases on subsequent updates of its innovative batteries.
However, the company’s cash position is also worth noting in the latest results. QuantumScape ended the third quarter with about $ 1.5 billion in cash, and they expect to end with $ 1.3 billion by the end of the year – healthy reserves for operational needs.
Wider Market Correction and Infrastructure Bill
With the exception of the pandemic-induced jolt, we have witnessed a historic bull run over the past decade. However, even after the onset of the pandemic, the Fed, US government stimulus, and retail investors quickly rebounded.
But just as investors are happy, they wonder when everything is going to end. There is no sure way to predict exactly when the penny is going to fall. One thing is certain, however, is that growth stocks will pay the price.
We’ve already seen EV stocks fall back to earth after astronomical valuations last year. To understand the phenomenon, you have to go back and see why these EV games worked so well in the first place.
With most of the global shutdowns, environmentalists were over the moon. People liked what they saw when they looked out the window: a clear sky.
Most governments around the world had already set ambitious goals for achieving net zero emissions. However, the pandemic has led to an escalation of green policies. This is great news for electric vehicle manufacturers like You’re here (NASDAQ:TSLA) and Nio (NYSE:NIO). It has also greatly helped companies like QuantumScape, which provide ancillary services to industry.
Additionally, President Biden unveiled a $ 2 trillion plan to rebuild infrastructure and strengthen the national economy earlier this year. It goes through various stages of the legislative branch of government. Every time it crosses an obstacle, EV inventory gains due to its large EV infrastructure component.
But when we step back, we’ll see that all of this has little to do with the internal realities of QuantumScape. The company’s batteries are expected to enter Volkswagen vehicles in 2024 or 2025. That means investors need to be patient.
QS Stock is enticing after giving gains
No one can justify QS’s $ 10.6 billion market cap at this point in the game. However, if you want to invest in QuantumScape, now is a good time to do so. As we saw earlier, the stock price tends to rise after earnings as the markets are ready to absorb the details regarding the batteries.
In the long run, the QS stock has all the makings of a multi-bagger. The technology at the heart of this business has all the potential to be a game-changer for electric vehicles.
Considering all of these factors, this should be part of your portfolio if you are to believe in electric vehicles and their future. Over the next five years you will look with fondness on this investment.
At the date of publication, Faizan Farooque did not hold (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Faizan Farooque is a contributing author of InvestorPlace.com and many other financial sites. Faizan has several years of stock market analysis experience and was a former data reporter at S&P Global Market Intelligence.