This is my first time writing about QuantumScape (NYSE:QS) since the company completed its reverse merger with Kensington Capital. Needless to say, the stock remains volatile. On Dec. 22, QS stock closed at over $131 per share. Now it’s trading at less than half that price.
Does that make QuantumScape a buy-on-the-dip opportunity or is this a stock that investors should take a hard pass on? That’s for you to decide.
The story of QuantumScape is both simple and complex. The company is developing a solution to the current lithium-ion battery issue that is propelling and vexing the electric vehicle sector. According to the company, a solid-state lithium battery can boost optimization up to 80%. This would mean an EV could travel as much as 600 miles on one charge.
On the other hand, the company will not bring a product to market for several years. And during that time, the competition is ramping up.
An Expensive Bet On a Long-Term Payoff
Tom Taulli points out that there’s a lot to like about QuantumScape. The company has over 200 patents and more than 100 trademarks. That’s the kind of information that excites investors.
Another thing that generally boosts a stock is the backing of private investors. QuantumScape checks that box as well. The company has generated over $800 million in private investments including from the co-founder of Tesla (NASDAQ:TSLA), J.B. Straubel and Bill Gates, the founder of Microsoft (NASDAQ:MSFT).
However, the company is years away from bringing a product to market, even if the technology may have applications that go beyond the EV sector. And as Taulli wrote, the trading on the stock remains volatile and we may not have seen a bottom.
4 Years Is a Long Time to Wait
In an earlier article on the special purpose acquisition company that brought QuantumScape public, I described the company’s solid-state battery as being, potentially, the metaphoric “better mousetrap” for the EV sector. And it very well may be just that.
The problem for investors is that they will have a long time to wait before being able to answer that question. QuantumScape is about four years away from bringing a product to market. And already competitors are finding ways to make the current lithium-ion batteries more efficient.
Plus, the Biden administration has pledged to make electric vehicle adoption a priority. Granted it has more pressing issues in the near term, but it won’t be waiting on a new battery.
This makes QuantumScape one of those stocks that creates a circular debate. There are no earnings to speak of. The story is the stock. And that story does not seem to be enough to justify the stock’s lofty price. At least for now.
Is QS Stock a Trade Or An Investment?
I know I must sound like a broken record for some, but 2020 can easily be described as the year of the trader. Millions of Americans were working from, and trading from, home. There has to be something else to do besides online video chats. But you can’t blame this on the Robinhood set. QS stock doesn’t crack the platform’s top 100 stock, but the stock is being driven by aggressive trading.
This presents a difficult scenario for investors who like the company’s long-term story. If the stock remains volatile, you’re going to have to be willing to hold on to your conviction through what will probably be a lot of ups and downs. If time is your friend, the potential reward may be well worth the risk.
On the other hand, if the traders decide there are other targets of their affection than QS stock may settle into a range that may test the patience of investors. Once again, if time is your friend, this may be less of an issue.
Either way, you have to be realistic about the amount of capital you want to tie up in a stock that may be a great solution but is far from a sure thing.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.