Even at Current Lows, QuantumScape Stock Still Offers No Reason To Buy

QuantumScape (NYSE:QS) stock is in a slump. To be fair, that’s not too surprising. Many electric vehicle (EV) and green energy stocks have been in a downtrend for months now. QS stock began its slump in late March.

A sign for QuantumScape (QS).
Source: Michael Vi / Shutterstock.com

The Invesco Solar ETF (NYSEARCA:TAN), for example, is down 33% from its 52-week highs. Investors bid up green stocks dramatically following President Biden’s election victory. But, so far climate legislation hasn’t kept pace with peoples’ expectations.

All that said, the company’s performance has been particularly bad. QuantumScape stock is down 71% year-to-date, and has fallen 82% from its 52-week highs. Anyone that bought the stock at $100 or above is facing a pretty severe loss on their position at this point.

After dropping so far, however, it might seem like QS stock must be a buy here. But, that’s simply not the case. Even after a big decline, there’s still little to recommend about QuantumScape going forward.

QS Stock Still Under a Dark Cloud

I know many readers are probably tired of hearing about the allegations against QuantumScape. It may seem like old news at this point to bring up the 188-page bombshell report that called QuantumScape a worse fraud than Theranos. However, that bearish report is still the most crucial factor for QS stock’s outlook.

That’s because the company never managed to credibly refute many of the major allegations in the report. That’s not just anecdotal either, QuantumScape stock hasn’t seen any significant rallies or bullish activity since April when the report hit. The market has judged the report to be significant and management’s response to be underwhelming.

A big part of that is also due to QuantumScape’s early nature of development. Normally, when a short report comes out, analysts suggest that management let the earnings numbers disprove the shorts. In the case with this Silicon Valley company, however, there is no ready bullish financial argument, since the company has no profits or even revenues for that matter.

Is the Technology Even There?

To own QS stock, you have to believe in the company’s story. However, as we’ve seen this summer, a lot of special purpose acquisition companies (SPACs) promised investors the world but delivered far less. Just in the EV space, we’ve seen firms like Lordstown Motors (NASDAQ:RIDE) and Canoo (NASDAQ:GOEV) crash and burn as it became clear that their reality was far less promising than their initial investor presentation.

That’s even before you get to the elephant in the room: Nikola Motors (NASDAQ:NKLA). Nikola had a charismatic CEO, Trevor Milton, who promised that Nikola’s vehicles would revolutionize the transportation industry. Its hydrogen technology and fueling network would make existing trucking operations obsolete. Nikola raised a ton of money and gained analyst praise based on little more than a prototype which, as it turns out, was itself fabricated. The Justice Department is now pursuing securities fraud charges against Milton.

The short seller report against QuantumScape alleges a variety of misrepresentations, exaggerations, and hyperbole about the company’s purported batteries which could rise to a similar level of fraud if the allegations are true.

Whether or not QuantumScape’s battery technology actually works as promised at commercial scale remains to be seen. However, it will be years until the company can potentially provide financial proof — that is, profits — meanwhile the current market environment is no longer giving SPAC stories the benefit of the doubt.

QuantumScape Stock Verdict

QuantumScape stock is essentially a venture capital (VC) bet disguised as a publicly traded firm. Normally, when companies have potentially ground-breaking but unproven technology, VC firms fund said research. VC firms can do so, knowing most experiments will go bust, because the other bets that hit can offer unbelievable upside which more than offsets the losers.

The same is likely to hold for battery research. If a company gets it right, it will have tremendous upside. However, the history of battery companies shows tremendous numbers of failure for every one that succeeds. QuantumScape, with such a limited operating record, hasn’t done much to demonstrate credibility yet. There’s a chance it could work out, just as there’s a chance that a lottery ticket will hit the jackpot.

That being the case, most investors should steer clear of QS stock. At least until the company actually has a factory up and running and starts selling batteries at a commercial scale, there’s simply too much uncertainty here. A VC firm can bet on something like QuantumScape as part of a portfolio of 50 different green energy start-ups. That makes sense. However, individual investors with lower risk tolerance should be extremely cautious about investing in these sorts of moonshot stocks, particularly when the key technology has been so heavily criticized.

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.

Article printed from InvestorPlace Media, https://investorplace.com/2021/08/even-at-current-lows-quantumscape-stock-still-offers-no-reason-to-buy/.

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