QuantumScape (NYSE:QS) has left many investors feeling the sting this year. But is a second coming for QS stock possible?
Let’s look at the environment facing QS stock off and on the price chart, then offer a risk-adjusted determination aligned with those findings.
Do you believe in the Jesus battery? QuantumScape believes it’s in their grasps and they’re not alone. Auto giant Volkswagen (OTCMKTS:VWAGY) and Microsoft’s (NASDAQ:MSFT) visionary and investment savvy Bill Gates are among those with financial stakes in the outfit’s mission to radically change electric vehicle (EV) battery technology as we know it.
The End Game
QuantumScape’s end game is to use its next-generation, higher energy density solid state quantum lithium-metal battery to increase an EV’s driving range by as much as 50% while being able to juice up in less than 15 minutes. The startup also wants to accomplish this feat with increased safety, reliability, longer battery life and cost-saving efficiency.
If QuantumScape’s battery is realized it would be a Hail Mary if ever there was one. And for a brief time many others believed in QuantumScape’s quest. At the end of 2020 QS stock was the most amped up investment vehicle on Wall Street. Shares throttled higher by nearly 1,100% to a record high of $132.73 in less than two months into the Christmas holiday.
But as most anyone with even a passing interest in the stock market likely knows, that gift was quickly unwrapped and has been almost completely discarded in 2021.
Blame it on what you will. Last year’s SPAC themed gravy train has been largely derailed since mid-February. And in today’s risk-sensitive environment, more speculative ventures like QS stock have taken it on the chin. One that dour note, if misery loves company, QuantumScape’s investors can commiserate with peers ChargePoint (NYSE:CHPT), Churchill Capital (NYSE:CCIV) and a host of others.
QS Stock and the Battery
But QS stock’s 78% fall from grace is also more specific to QuantumScape.
Shares had already tumbled 36% to finish 2020 after quickly peaking on Dec. 22, 2020. That was well ahead of this year’s broader rotation out of SPACs beginning in mid-February. Moreover, the stiff selloff followed an impressive sneak peek at QS’ game-changing technology. Its actual road worthiness remains a likely multi-year endeavor on top of the outfit’s $300 million, 10-year commitment.
Investors simply got a case of cold feet.
This year, QuantumScape did announce it’s one step closer to battery technology’s Holy Grail with a successful density increase from one to four cell layers. However, the test results are still multiples removed from real-world applications and the breakthrough coincided with 2021’s broader U-turn out of SPACs. As a result, the important victory failed to gain any lasting traction with anyone other than bearish investors.
Scorpion’s Stinging Allegations
Most recently, in mid-April, short-focused advisor Scorpion claimed QuantumScape’s battery technology is “no different than other recently exposed SPAC promotions and EV frauds.” Think Nikola (NASDAQ:NKLA) or Hyliion (NYSE:HYLN). The report helped sink QS shares by roughly 15% and to their weakest levels since late November.
But Scorpion’s imposing, but also lacking concrete evidence, 188 slide presentation begs the question: Are investors shooting first amid an anti-SPAC environment and, at a later time, do a more thorough examination of what’s under the hood of the short-seller’s report? Maybe.
QS Stock Weekly Price Chart
Source: Charts by TradingView
On the price chart and 2021’s less-friendly, multiple-crushing investing environment motoring on, “it is what it is” for QS stock these days. To some, that can rightfully mean “it is” or rather QuantumScape has shaped a deep bullish hammer in response to Scorpion’s stinging low in shares. And that’s a good thing, right?
Today’s weekly patterned bottom is a truth that can’t be denied. Additionally, with the candlestick confirmed and stationed just beneath the 76% retracement level, QS does have that cheap but valuable-looking quality to it. Will it work is another question entirely. And right now those odds are slipping.
As I’ve discussed prior in QuantumScape, volatility is a two-way street. For investors that are keen on the company’s ability to resurrect conditions resembling or marginally rhyming with 2020’s upbeat behavior, I’d still offer a highly-flexible QS stock collar as the best way to invest more smartly. And this is regardless of what the market’s next move is.
A Move to Consider
One combination which looks well-positioned is the August $40/$60 collar in QuantumScape. This structure allows investors to ride out today’s pressured conditions and profit handsomely from an emerging bullish trend in QS stock.
Still, there are no guarantees of where QS stock will be tomorrow, let alone three months from now. Appreciatively, this collar also keeps positional risk contained to less than 10%. And bottom line, that means investors could be in a much stronger position to throw in the towel without getting smoked or for building a larger stake in QuantumScape amid more sure signs of blood in the streets.
On the date of publication, Chris Tyler does not hold, directly or indirectly, positions in any securities mentioned in this article.
The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.