As it moves back to $25 per share, some may see now as the time to buy Quantumscape (NYSE:QS). After getting knocked down throughout 2021, now’s the time to buy QS stock, right? Not necessarily. Even as the pivot to electric vehicles (EVs) is speeding up, it remains too early to dive into this EV battery play.
Why? Two reasons. First, at today’s prices, shares are at a valuation that’s likely reflective of its big-but-not-set-in-stone potential. With partners like Volkswagen (OTCMKTS:VWAGY), as well as another major automaker, rumored to be Stellantis (NYSE:STLA), commercialization will be no sweat. Once its solid-state battery (or SSB) technology is ready for prime time, of course. There’s still plenty of uncertainty as to whether it can disrupt the dominance of lithium-ion batteries in EVs, and come out with an alternative that offers greater safety and longer range.
Second, the other shoe still needs to drop with the stock market. We’ve seen stocks move lower due to the specter of monetary tightening, and rising interest rates. Yet the worst may still lie ahead. Sure, depending on how the Federal Reserve controls the situation, richly-priced growth stocks may be in for, at worst, a soft landing.
But the prospect of a soft landing just means shares will remain unable to make a recovery. Putting it simply, waiting for a more ideal entry point remains your best move.
The Latest With QS Stock
Besides the above-mentioned partnership deal, there’s something else that’s helped to recharge interest in Quantumscape. That’s increased hope that the U.S. Congress will pass its much-discussed infrastructure bill. As of this writing, gridlock between moderate and progressive Democrats continues to delay it.
Yet if a bill gets passed, and signed into law by President Biden? It will likely give EV stocks, QS stock included, another bit of a boost. This trillion-dollar package, which includes funding to build-out America’s EV infrastructure, could further put the EV industry into hyperdrive.
This may be a boon for the industry. But this by-itself isn’t going to put Quantumscape shares on a fast path back toward its past higher price levels. As you may recall, late last year, this stock traded for as much as $132.73 per share. Mainly, just like other EV stocks, that the Biden administration would speed up the shift to electric-powered vehicles.
Nearly a year later? Investors have walked back their expectations, realizing that the “EV megatrend” is going to take many years to play out. For some names, like early-stage EV companies, the “payoff” stage may not be that far away. But in the case of this company? If it all goes to plan (i.e. it develops a solid state battery ready for the road on time), at best it’ll start generating sales for its flagship product in 2024 or 2025. Between now and then? A lot could happen. Including another correction, pullback, or sell-off for growth stocks.
Whether Markets Experience a Hard or Soft Landing, There’s Little Risk in Waiting
The stock market, as measured by indices like the S&P 500 (NYSEARCA:SPY), may be recovering from its sharp declines late last month. Yet the risk of more market volatility remains high. Bond yields keep moving higher, ahead of central banks like the Fed starting to taper their pandemic-era dovish monetary policies. As inflation persists, and as some Fed officials admit that it’s proven to be anything but “transitory,” the so-called “interest rate liftoff” appears more likely to start sooner than once expected.
What does this have to do with QS stock? Besides the EV industry tailwinds, factors like near-zero interest rates have played a big role in sustaining this and other early-stage EV stocks. Priced on future results, with low interest rates (an in turn, a lower discount rate), investors have been willing to give them a very high present value.
However, once said near-zero interest rates start to move up? Valuations for growth stocks like early-stage EV names will contract. Yes, depending on how slowly the Fed changes its policies, markets may avoid a hard drop. Even so, that just means Quantumscape will stay at $25 per share, or drift down to $15 or $20 per share.
With the high chance it stays beaten down, or moves lower, before it starts to soar on progress with its SSB technology, why buy today?
The Verdict on Quantumscape: Sit Tight, The Time to Buy Will Emerge
Assuming it all goes according to plan, in a few years this company will have built a “better mousetrap,” so to speak. A battery that makes EVs a viable substitute for gas-powered vehicles. Yet with many years (and possibly, more market volatility) between now and when it reaches this “payoff” moment?
Sitting tight, and waiting for another wave of weakness to buy, remains your best move with QS stock.
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.