Warning! Hit the brakes on QuantumScape Stock

quantum landscape (NYSE:QS) stocks have been in tears since the start of the year, but that could be starting to wind down. After briefly hitting double-digit prices again on February 2, QS stock saw a pullback, falling to high single-digits.

This may only seem like a modest decline for shares of this early-stage electric vehicle battery technology company, but make no mistake: QS offers investors high downside risk, with better upside potential. described as questionable.

The reasons for the big breakout in the stock price are temporary in nature. Soon, the fundamentals of Quantumscape will return to center stage. This is bad news for anyone “buying the dip” today.

Given the company’s poor financial condition and the high likelihood of its tax problems accelerating, this stock could return its recent gains and then some. Let’s dive in and see why it’s always wise to stay away.

QS Stock and the 2 fading factors behind its recent rally

Importantly, Quantumscape’s turbo rally came on the heels of virtually no news directly from the company. In fact, with the exception of announcing its next quarterly earnings release (scheduled for Feb. 15), QS hasn’t issued a press release since Dec. 20.

Therefore, it is almost certain that two factors drove the rally in QS shares. Both relate to the market, not the business, and have little to do with the underlying business of the business.

First, equities initially resumed an upward trajectory, thanks to the rise in general optimism among investors.

With signs of slowing inflation and heightened hopes of a Federal Reserve ‘pivot’ on interest rates, speculative growth stocks such as QS, after months of disgrace, quickly returned to favor .

Secondly, the renewed enthusiasm around the potential “short squeeze” of this title.

Over the past few weeks, a series of what can best be described as “squeeze waves” have temporarily pushed stocks higher, due to increased inflows from retail speculators. Yet, while traders who caught these trends early on generated quick profits, it is too late to take advantage of them. Both factors have started to fade.

A quick return to pre-rally prices

More recent statements by Federal Reserve Chairman Jerome Powell signal that while disinflation has begun, it is still in its infancy. To encourage further deflation, the central bank remains determined to continue to gradually raise interest rates.

With that, investors are starting to pull back from speculative growth stocks. Not only that, but the recent frenzy for short-term stocks also seems to be fading. As it looks like these two trends will no longer be on its side, QS stock is currently in a very vulnerable position.

Already pricing its future potential at around $5 per share, at $9 per QS share, that potential is a virtual certainty. That’s not sustainable, as the company has yet to prove that it can bring a cheaper, safer, stronger EV battery to market.

With its future up in the air, barring unexpected breakthroughs, investors are likely to use subsequent corporate events as an excuse to sell. A good example is next week’s earnings report. If management is once again sparse on the specifics with regards to Quantumscape’s timing to the monetization stage, stocks could experience a rapid return to pre-rally prices.

Takeaway meals

Besides the risk of Quantumscape recouping recent gains in a post-earnings sell-off, QS also risks hitting new lows by the time it (eventually) exits the research and development (or R&D) phase, and in the production phase.

Depending on the extent to which potential risks such as development setbacks or shareholder dilution manifest, instead of charging its way above $10, $15 or even $20 per share, Quantumscape could dive deep into the penny stock territory, changing hands for only a few. dollars per share.

Given these risks and the fact that there are too few of them to give credence to the bullish deal, the takeaways with QS stocks are clear. If you bought before the big rally, it’s time to take profit. If you haven’t entered a position yet, avoid it at all costs.

QS stock gets a D rating in portfolio binder.

As of the date of publication, neither Louis Navellier nor the member of the InvestorPlace research staff principally responsible for this article holds (directly or indirectly) any position in the securities mentioned in this article.