QuantumScape (NYSE:QS) traded above $20 from Nov. 19, 2020, through Aug. 18, 2021. So if you’re counting, QS stock traded above $20 for nine consecutive months.
And then, on Aug. 19, it closed at $19.30, ending a pretty good streak for a company that’s not expected to have a product in production until 2024 or 2025.
In early August, I argued that aggressive investors ought to be buying QS stock under $20.
“We won’t know for some time whether Bill Gates and Volkswagen were right to throw their support behind QuantumScape. But, as Luke [InvestorPlace’s Luke Lango] says, if you’re patient money, QS stock below $20 is a very intriguing buy.”
At the time, it was trading a little over $23. Since falling below $20, it’s recovered most of the losses.
With few catalysts, my suggestion from early August still stands. QS stock remains a buy under $20 for aggressive, speculative investors.
Here’s why.
Buy QS Stock Below $20
Normally, with a developing business such as QuantumScape, I’d be incredibly cautious about recommending its stock. However, as I said, this recommendation is aimed at people using fun money to bet on the next great breakthrough in the electrification of transportation.
Most definitely, it’s not a buy-and-hold investment for your retirement portfolio.
In late July, it reported Q2 2021 results that included a loss of 12 cents, 50% higher than a year ago. That might seem like a lot, but given it had almost $1.6 billion in cash on its balance sheet at the end of June, it should be fine.
In May, QuantumScape estimated its 2021 capital expenditures at $320 million at the high-end of its guidance. That was up from $290 million in its previous guidance.
However, on Page 6 of its Q2 2021 letter to shareholders, it reiterated that it plans to deliver prototype samples of its solid-state batteries (SSBs) in 2022, fuel cells for research and development test cars in 2023, and as I said at the beginning, commercial production by 2024-2025.
The Timelines Haven’t Changed
Nothing has changed on that front. Timelines haven’t been pushed back. So that’s good news in my books.
QuantumScape had an operating loss of $94.3 million in the first six months of 2021, a little more than 3x its operating loss in the same period a year earlier. If we double the loss for the second half of the year and double it again in 2022, QS will lose $189 million in 2021 and $377 million in 2022.
That would still leave it with approximately $1 billion in cash at the end of 2022, within spitting distance of its commercial production timeline.
By the end of 2022, investors will have learned what the automotive original equipment manufacturers (OEMs) think of their prototypes. If the OEMs are enthusiastic, you can be sure QuantumScape will have no trouble raising additional funding should it require wiggle room.
So, while it’s conceivable that QS stock could fall into the mid or low-teens despite the good news, I view this as unlikely.
What Could Drop QS Stock
As I said in the previous section, timelines haven’t been pushed back to date. Were this to happen, there’s no doubt its share price would face downward pressure.
InvestorPlace contributor Ian Bezek laid out the reasons you shouldn’t buy QS stock in mid-August.
He believes a bet on QS stock is nothing more than a lottery ticket. He’s not wrong at this point of the proceedings. That’s why I caution all but the most aggressive investors from considering its stock.
Of all of Bezek’s arguments, I think his best has to do with the nature of battery research and the industry itself.
“[T]he 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,” he wrote on Aug. 16.
Look at Ballard Power Systems (NASDAQ:BLDP), the Vancouver-based developer of fuel cells. It went public on Nasdaq in November 1995, yet it’s spent most of the past 17 years trading under $10, well down from its triple-digit highs during the dot-com bubble of 1999 and 2000.
It’s never generated a whole lot of revenue over the 25 years it’s traded on Nasdaq – it had revenue of $103.9 million in 2020 – there’s no assurance at this point that QuantumScape won’t be any different.
So, I totally get my colleague’s arguments about QuantumScape.
The Bottom Line
If Volkswagen (OTCMKTS:VWAGY) weren’t into QuantumScape to the tune of $200 million, I wouldn’t be nearly as enthusiastic about recommending its stock to aggressive investors.
However, it is, and until it isn’t, I believe buying QS stock under $20 still makes sense from a speculative point of view.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
