Quantumscape (NYSE:QS) is now well off of its highs, trading at $17.30 per share as of Thursday, Jan. 20. A month ago when I wrote about QS stock, it was at $23.57 per share. As a result, Quantumscape has fallen by $6.27 per share to $17.30, a drop of 26.6% in the last month.
At the time I wrote that Quantumscape, the lithium metal battery maker, was a bargain. As a result, that makes it an even better investment find this month. After all, since closing at $22.19 on Dec. 31, QS stock is already down 22% since the end of 2021.
As a result, QS stock is likely to be fairly volatile, especially until the company starts booking revenue.
Where Things Stand For Quantumscape
Investors still seem to be concerned that Quantumscape won’t start making any revenue until 2024 with its existing solid-state battery technology. This is based on page 28 of the company’s September 2020 investor presentation.
Based on these projections, which don’t seem to be in its August 2021 investor presentation, the company will have just $14 million in revenue by 2024. Next, in 2025, its projection is for $39 million.
In fact, it’s not until 2026 that Quantumscape will make any really significant revenue. The 2020 presentation shows its forecast for that year predicts sales of $275 million. The problem is that this is still five years from now.
That is a long time for investors in Quantumscape to wait for any kind of financial prospects for the company. That likely accounts for the high volatility in QS stock, at least in the past several months.
Moving Into Stationary Energy Uses
On Jan. 13, Quantumscape announced a new partnership that will allow it to produce batteries for more than electric vehicles (EVs). Its deal with Florence Energy (NASDAQ:FLNC) will allow it to introduce its solid-state batteries for stationary energy storage applications.
This is a whole new area that will open up large markets for Quantumscape, including utilities (battery-based storage on the electric grid.) The two companies will validate and test QuantumScape solid-state battery cells to be used in Fluence’s stationary storage products.
As Barron’s points out, batteries are also being used by utilities to help make renewable power generation available 24/7 by storing wind and solar energy.
Moreover, based on recent studies, the market for stationary energy products could be as much as $385 billion by 2030. If the company can garner even a 1% share in that business, its annual revenue will be $3.85 billion. That goes a long way toward justifying Quantumscape’s $8.24 billion market capitalization as of Jan. 20.
Valuing QS Stock
For example, let’s say it can produce $5 billion in sales from stationary energy by the end of 2030. Including 2022, that is nine years from now, and at a 10% annual discount rate, the present value factor is 42.4%. That implies the present value of $5 billion nine years from now is $2.12 billion today.
As a result, that puts the stock on an adjusted price-to-sales (P/S) multiple of just 3.88 times. This also does not include its expected revenue from EVs by the time.
According to its 2020 slide deck, the company expects EV revenue of $6.49 billion by the end of 2028, or seven years from now. With a present value factor of 51.31%, the present value of that EV revenue is $3.33 billion. So, including the $2.12 billion in stationary power revenue, the total present value is $5.45 billion.
As a result, the present value P/S multiple is just 1.5x revenue. That is a very cheap price. Granted, this involves a lot of forecast revenue and major assumptions.
For example, if we set the discount rate to 15%, the present value of both streams of revenue works out to $3.86 billion ($1.42 billion for the stationary energy part and $2.44 billion from EVs.) That raises its P/S ratio to 2.13 times. This is still very cheap.
Where This Leaves Investors in QS Stock
The bottom line seems to be if you can stand the volatility, QS stock looks pretty cheap here. The fact that the company is now expanding into a new line of revenue could help it bring forward revenue earlier than from EVs.
That could also help reduce the volatility in the stock going forward. Nevertheless, investors in QS stock are going to have to be patient. They should expect a bumpy ride, but at least the company is trying to make its future revenue sources look more secure.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) 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.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
