With few stocks trading in the green today, it’s a sea of red out there. Accordingly, many investors may be looking at some of the most beaten-down stocks to see if there are some buying opportunities. QuantumScape (NYSE:QS) is one such company, with QS stock down around 6% at the time of writing.
This move follows broadly bearish price action across most sectors. Tech and electric vehicle (EV)-related stocks are among the hardest-hit, as investors look to de-risk their portfolios and find places to hide. QuantumScape’s business model, which revolves around developing solid-state batteries, is intimately tied to growth expectations in the EV sector. Today, analysts are renewing calls for growth forecasts to be cut for the auto sector broadly. Accordingly, EV stocks are seeing valuation compression as investors look elsewhere.
Other headwinds coming out of China are providing doubt for EV investors. The Chinese Communist Party meeting is underway, with expectations that trade-related issues could arise hurting the global outlook for this space.
Overlaying all these concerns are recent data investors are watching that shows inflation expectations could be increasingly embedded in the minds of consumers. This is the worst-case scenario the Federal Reserve has been trying to avoid. Accordingly, more frequent and larger rate hikes could be on the horizon.
Why Is QS Stock Down Today?
This macro backdrop is certainly not favorable. There really are no catalysts to point to for companies like QuantumScape in terms of forward-looking growth drivers. The Fed is out to quash demand. Growth for the EV sector is likely to decline. And consumers are starting to believe that inflation could last a lot longer than previously expected.
Thus, QuantumScape appears to be a logical stock to sell. This is a company that’s still basically pre-revenue. Its business model is based on developing solid-state batteries, a technology that currently doesn’t exist (in scale). Thus, fewer investors are willing to put speculative risk capital to work at a time like this. Demand for stocks that don’t produce profits and are likely to burn through cash is very low right now.
In this environment, QuantumScape is a stock I think will continue to see downside pressure. This is a company I’ve been skeptical about for some time. However, today’s price action is an indication to all investors that the market seems to view this company in a similar light. Until things substantially change, I think this will continue to be the case.
On the date of publication, Chris MacDonald 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.
