It may be an electric vehicle (EV) battery maker rather than a maker of EVs, but QuantumScape (NYSE:QS) has taken investors for a wild ride in its relatively short life as a public company. Shortly after the special purpose acquisition company (SPAC) merger that took it public, QS stock was trading for prices well over $100 per share.
Even after its initial plunge last spring and summer, this electric battery play revved up again. Following the passage of the bipartisan infrastructure bill in November, shares soared back from under $25 back to above $40 per share.
Unfortunately, this didn’t mark the start of a comeback. Instead, with the Federal Reserve’s rate hike plans lowering the appeal of growth stocks, QuantumScape took another dive in the last weeks of 2021. Since the start of the new year, shares have continued to drop. At around $18 per share today, the market continues to cool on this former “hot stock.”
Since mid November, it’s down about 61%. Since hitting its all-time high on Christmas eve 2020, it’s down 86%. Investors playing the long-game with the EV megatrend may see now as a great time to scoop this stock on the cheap. However, still valued primarily on the potential of its solid-state battery (SSB) technology, it has more room to fall before it’s a bona fide bargain.
Latest Positive for QS Stock
So far in 2022, QuantumScape has had a mix of positive and negative news. First, the positive. Earlier this month, the battery maker announced its plans to move beyond just providing batteries for EVs. Partnering with Fluence Energy (NASDAQ:FLNC), the company will offer rechargeable SSBs for stationary power applications.
This is a positive for QS stock and its long-term prospects. Stationary power may be more of a sideline business today. Yet it could grow into an opportunity as EV batteries. The total addressable market for the company’s technology could wind up being much larger than previously assumed.
Even so, news like this isn’t giving shares a charge in the near-term. Instead, the market’s cycling out of growth plays due to rising interest rates is outweighing it. So too, is a negative development pertaining directly to the company.
As InvestorPlace’s Samuel O’Brient reported, news of a judge allowing a shareholder lawsuit to go forward against the company caused the stock to take another sharp drop on Jan. 19. The suit alleges that QuantumScape misled investors when it came to tests on the quality/performance of its batteries. It’s too early to say whether concerns about this suit are true or false. But even if concerns about this suit prove overblown, shares could continue to head lower in the months ahead.
Upside Limited
I can see why some investors may want to dive into QS stock now. It’s gone from “too hot to touch” to out of favor, in a short period of time. With this, it may appear as if shares have fallen to a price that underestimates the company’s long-term potential.
Assuming its SSB technology delivers as promised, this company could have annual revenue well into the batteries. Especially given that its partnership with Volkswagen (OTCMKTS:VWAGY) will fast-track commercialization. Yet while its shares have been beaten down, with its $6.64 billion market capitalization, investors may still be pricing the pre-revenue stage company’s many possibilities as certainties.
Even if you assume its technology is the real deal, that alone may guarantee big success is in its future. As my InvestorPlace colleague Stavros Georgiadis argued back in December, it still needs to prove whether it can build SSBs on a large scale. Its eventual sales could come in far short of lofty projections calling for as much as $6.4 billion in annual sales by FY 2028.
In turn, upside potential with QS stock may be lower than you think. A full trip back to above $100 per share may never arrive. Coupled with this limited upside, is the potential for more near-term downside, as interest rate hikes continue to lower growth stock valuations. Put both together, and the risk/return proposition has a ways to go before its back in your favor.
No Value Bargains
Among the scores of growth stocks that have plunged, there may be a few bargains out there. Maybe not “bargains” in the value investing scene. But perhaps bargains in the sense that they are more than reasonably priced relative to future growth. QuantumScape right now though doesn’t belong on that list.
It’s worth keeping an eye on it. It’ll likely continue to make wild moves, in either direction. Yet until QS stock reaches the point where it’s been truly oversold, it’s best to hold off buying.
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.
