If this were a video chat and not the written word, you would be able to see the egg all over my face regarding my recent calls about QuantumScape (NYSE:QS) stock.
Writing about investments is never easy. Innovative future-revenue companies like QuantumScape are ticklishly challenging to value. That’s especially true when the stock seems to be on a permanent correction.
When it comes to this developer of solid-state lithium-metal electric batteries, I whiffed, not once but twice in November, prophesying about the future direction of its stock.
In early November, I suggested that if you were a speculative investor, a bet at that point – it was trading at $31 – could deliver an excellent, two-month 30% return by hitting $40 by the end of 2021.
In fairness, it hit $40 in mid-November, but that was long enough for a cup of coffee, and that’s about it.
On Nov. 18, just days after busting through $40 – its highest level since April – I suggested that the mid-$30s was a very attractive entry point for the speculative investor.
Oops. It’s down 30% in the month since.
I give up trying to figure out a good entry point for this stock. I mean, it’s not expected to generate revenue until 2024. So I might as well buy a cryptocurrency given the lack of fundamentals to bite into.
However, it got some good news on Dec. 17. As a result, while the Dow Jones and S&P 500 were both down more than 1% on the day, QS stock was up more than 3%
Perhaps it has finally bottomed. I’ll leave that up to you to decide. In the meantime, every little news byte helps.
QS Stock and Future Revenue
As I said, QuantumScape isn’t expected to generate real-world revenue until 2024, so the news that it’s signed another business partner to work with it testing and validating its solid-state battery technology doesn’t mean the timeline has changed at all.
That said, the addition of a “luxury automaker” would bring the company’s partners to three, which include Volkswagen (OTCMKTS:VWAGY), its joint-venture partner to manufacture batteries in the future, and another unidentified partner announced in September.
It continues to check off things on its long-term to-do list. As InvestorPlace’s Alex Sirois recently stated, QS stock tumbled for no good reason.
“There’s no reason to suspect that anything in particular is wrong with the company. It is doing what it should and reaching milestones, so it looks strong,” Sirois stated on Dec. 14.
I couldn’t agree more.
When it was trading at $40 in November, investors knew less than they know now about its progress. They also were fully aware that it had, and will have for some time, nothing but expenses and zero revenue.
And yet, here we sit a few dollars from the teens.
It’s More Than a Contrarian Play
Keeping in mind that a bet on a company with no expected revenues until 2024 is, by definition, what you would call a speculative investment, I do think investors who fit this profile should consider QuantumScape to be more than a contrarian play.
The “contrarian play” description is from InvestorPlace contributor David Moadel’s most recent comments about the company.
“By mid-December, the stock was trading near $23 and going nowhere fast. As the dust clears, all that’s left are QuantumScape’s true believers — and that’s why contrarian investors should consider picking up the pieces with a long position,” Moadel wrote Dec. 16.
My colleague plays a little fast-and-loose with its Q3 2021 earnings by reminding readers that the company had a $391 million turnaround in the quarter, which suggests its financials aren’t that bad.
While all of the contributions to its profit in the quarter were a change in fair value of assumed stock warrant liabilities, he’s not wrong to say it’s not burning nearly as much cash as one might imagine.
However, its operating loss was $53.8 million in the third quarter, more than double the $20.7 million operating loss a year earlier. So, it’s not making money.
That said, I think the good news continues to trickle in. From where I sit, if you can stand the heat in the kitchen, QuantumScape has the potential to deliver Tesla-like (NASDAQ:TSLA) returns over the long haul.
But you’ve got to love volatility because it will be ever-present over the next five years. Innovation tends to do this.
I like it, but I’m not prepared to say it’s bottomed. In this case, the third time’s not a charm.
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.