QuantumScape (NYSE:QS) went from a hot special purpose acquisition company (SPAC) to damaged goods in record time. Back in December, QS stock traded for $130 per share. Just six months later, QuantumScape has lost a crushing 75% of its value.
Why did electric vehicle (EV) battery maker QuantumScape power down so quickly?
For one thing, the stock’s rise was in large part due to a small trading float.
At the height of QuantumScape’s rally, much of its share base was locked up, and insiders couldn’t sell. With a small float, it magnified the rally to the upside. Shares started to drop sharply as more float came to market.
Adding to that, short-sellers blasted the company with a comprehensive nearly 200-page report raising concerns about numerous facets of the company.
The short-seller report came out several months ago, and yet QS Stock continues trending downward. At some point, though, value hunters will start taking a look at QS stock. There are hopes that QuantumScape could get picked up by the Reddit crowd as well.
Short Squeeze in Focus
From a trading perspective, the best argument for QS stock is that 22% of the float has been sold short. That’s enough to attract all sorts of interest from traders.
In fact, we’ve recently seen short squeezes in stocks with significantly less short interest than that. For a few days recently, QuantumScape was achieving a notable upward trajectory on healthy trading volume.
Unfortunately for QuantumScape bulls, the short squeeze argument lost some voltage on Thursday. Many of the meme stocks dropped as traders looked to lock in profits on a lot of r/WallStreetBets names. Traders sold off QS stock particularly hard, with shares falling more than 10% in a single day.
QS stock had only rallied from $24 to $32 during the renewed meme stock and EV stock rally before plunging back under $28 in a single day once the tide turned.
This is a sign that there is still heavy selling interest in QuantumScape. It will take more than just a little buying interest in heavily shorted stocks to get QuantumScape moving again. When a lot of people are long the stock from much higher prices, and sorts of rallies often get sold off in a hurry.
Looking For a Comeback
So is there an argument that QuantumScape is set to recover? It depends on the time frame. From a trading perspective, QS stock’s best hope is a major short squeeze.
However, traders don’t seem to see the same appeal in QuantumScape that they are finding in other heavily shorted EV stocks.
Longer-term, you’d like to have seen a solid rebuttal that showed the short sellers had no legitimate basis for their incendiary claims.
Instead, we got a rather underwhelming rebuttal from the company that raised more questions than it answered. QuantumScape is claiming that it has technology that will revolutionize the battery industry. That’s a huge ask, and so far QuantumScape just hasn’t done enough to give investors confidence.
QS Stock Verdict
QuantumScape has fallen far enough that it should no longer be appealing for short-sellers. Though it must be said that the fact that the short-sellers still haven’t covered yet is rather interesting.
Perhaps this will be fuel for a big short squeeze rally. However, recent trading action hasn’t been promising on that front. With so many heavily shorted EV stocks flying, QuantumScape should have been able to rally much more significantly.
As a long-term investment — as opposed to a swing trade — there’s still not much to justify a position in QS stock yet. Skeptics raised a lot of serious questions about QuantumScape’s purported battery technology. The company’s response so far hasn’t been inspiring.
As such investors seem to be waiting to see if QuantumScape’s batteries actually generate significant commercial orders and revenues before investing in the company.
Given QuantumScape’s roadmap, it will be years before we know if the batteries really work on a broad scale as promised or not. Until then, expect much more uncertainty in QS stock.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.