As the adage goes, “time in the market” may matter more than “timing the market.” But when it comes to buying Quantumscape (NYSE:QS) stock as a long-term bet on the future of electric vehicle (EV) batteries? You may want to wait for a market downturn before making your move.
Why? EV plays like this one have already fallen big from their high water marks. Yet don’t assume the dust has settled completely just yet. Issues like possible changes in U.S. Federal Reserve monetary policy, or the continued spread of Covid-19’s Delta variant, could cause market turbulence later this year. If markets get stormy? Speculative growth names across the board will not be spared.
The upshot? If you haven’t bought it already, you may be able to enter a long-term position at a more favorable entry point.
Whether or not a market meltdown is around the corner, it’s going to be years until this early stage EV battery company starts to see its business take off. Very likely to sink lower before it heads higher, there’s little reason to dive in today.
The Rise and Fall of QS Stock
It’s an understatement to say the buzz around this stock was off-the-charts late last year. Two factors caused this. First, last November, this former SPAC (special purpose acquisition company) closed on its merger deal. Previously known as Kensington Capital Acquisition, it acquired Quantumscape and took on its name on Nov 27.
Given the big success investors had buying SPACs post deSPACing in 2020, it’s no surprise they rushed into QS stock. Second, hype for EV and EV-related stocks received extra runway, thanks to the perception that the election of Joe Biden as U.S. President would speed up America’s move to EVs.
As a result, the stock zoomed to prices more than 13x above its initial SPAC offering price of $10 per share. Unfortunately, investors who bought in at or near that top ended up with a serious case of holding the bag. Since topping out at $132.73 per share, the stock has taken a nearly 84% dive.
Between the spring crash in SPAC stocks, plus the realization that, even with Biden administration’s efforts, it would still take years for EVs to gain critical mass, speculators who saw this and similar stocks as “buys at any price” headed for the exits. But just because it’s appearing to find a floor at between $20 and $25 per share, don’t assume it’s bottomed-out just yet. A market-wide correction could mean another major move lower.
Why Quantumscape Could See Another Double-Digit Decline
Encouraging updates from its CEO (Jagdeep Singh) notwithstanding, it’s still a long road ahead for this company. The solid state batteries, or SSBs, it’s developing could become standard one day in EVs, given their price, range, and safety advantages over the lithium ion battery technology currently used. The problem? It may have, via its partnership with Volkswagen (OTCMKTS:VWAGY), a big customer already lined up. But it won’t be until at least 2024 that commercialization kicks off for Quantumscape.
How does this play into future price movements for QS stock? Even at its deflated prices today, shares are still being valued on hope and hype, as the Wall Street Journal recently put it. Waning enthusiasm for EV and SPAC stocks may have sent it down big from its all-time high. Yet the stock market’s resiliency, despite worries about Fed tapering, inflation, and the Delta variant, have likely helped to prop it up to some extent.
However, this could soon change. The Fed could speed up its plans to raise interest rates, and end quantitative easing. Even if the Fed sticks to its timeline, other factors could cause a downturn. For example, slowing earnings growth. Also, if the ramp-up in the vaccination push fails to bring the Delta outbreak under control? This too could cause markets to head lower.
If the bull market comes to an end later in 2021? Stocks priced on hype and hope like this one could see declines outsized compared to that of the overall market. Depending on the severity of the next downturn, it wouldn’t be surprising if QS stock briefly falls below its SPAC offering price of $10 per share.
If The Payoff is Years Away, Why Buy Now?
Still in the pre-revenue stage, the true “payoff” moment for Quantumscape remains years away. In the meantime, assuming a correction happens in the coming months or within the next year, shares may be in for another major decline.
With its high chances of it making a big move lower before it bounces back, why buy QS stock now? Even if you are bullish on its SSB technology, your best move may be to wait for lower prices.
On the date of publication, Thomas Niel 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.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.