There’s nothing wrong with believing in sustainable technology. However, you might want to think twice before considering an investment in electric vehicle (EV) battery technology company QuantumScape (NYSE:QS). It’s hard to justify buying QS stock when QuantumScape’s operational progress is moving at a slow pace. Plus, the company’s financials are far from ideal.
Generally speaking, being a contrarian means betting on stocks that most traders are selling. However, this doesn’t mean you should grab every stock that’s losing value. It’s important, whether you’re a contrarian or not, to avoid businesses that have major problems.
QuantumScape’s shareholders can only be patient for so long. After a while, it’s understandable if they want to throw in the towel. As QuantumScape goes quarter after quarter without delivering the results that cautious investors should expect, it’s wise to consider other companies to bet your hard-earned money on.
Slow Operational Progress Is a Problem for QS Stock
It’s going to be a tough road ahead for QS stock if QuantumScape continues to move at a slow pace. Sure, it’s essential for any company to “get it right” when introducing a new technology, such as an EV battery with 24 layers.
However, there’s a limit to how long investors should wait for new, meaningful developments from QuantumScape. As you may recall, QuantumScape shipped its 24-layer prototype battery cells to original equipment manufacturers (OEMs) back in December of last year.
Month after month, investors waited for a meaningful update on this development, but didn’t get one. Finally, QuantumScape released its first-quarter 2023 shareholder letter on April 26. However, there’s no timeline to commercialization of QuantumScape’s battery cells.
Apparently, QuantumScape aims to “complete installation, qualify the equipment, and deploy … first stage into initial production this year” for the company’s battery cell separator production process. This probably won’t get many investors enthused; at this rate, it’s hard to know how long it will be before QuantumScape will properly monetize its efforts.
QuantumScape’s Financial Hole Gets Deeper
It’s no secret that QuantumScape has never been profitable and Wall Street isn’t optimistic about the company. So, did QuantumScape’s new shareholder letter provide any financial details that should make the company’s investors feel any better?
The answer is no, unfortunately. QuantumScape didn’t mention revenue because, as expected, there was no revenue in 2023’s first quarter. There was, however, a net earnings loss of $104.631 million. This is a wider net loss than the $90.353 that QuantumScape lost in the year-earlier quarter.
On a per-share basis, QuantumScape lost 24 cents in Q1 2023. This represents a miss compared to the 20-cents-per-share loss that analysts had anticipated. Overall, QuantumScape has a track record of missing analysts’ EPS estimates in most quarters.
Moreover, QuantumScape’s position of cash, cash equivalents and restricted cash declined from $300.536 million in the year-earlier quarter to $258.733 million in 2023’s first quarter. Unless the company moves quickly toward commercialization of its products, QuantumScape’s capital position could continue dwindling. Hopefully, the company won’t have to resort to the old playbook of aggressively borrowing money or issuing stock shares.
Don’t Go Contrarian on QS Stock
Contrarian plays can make sense when a financially solid business has a slow month or two. In contrast, QuantumScape has numerous quarterly EPS misses and a dwindling capital position.
In addition, QuantumScape declined to provide a clear, specific timeline to commercialization/monetization of its products in the company’s recent shareholder letter. All in all, it’s tough to envision a successful contrarian bet with QS stock. Therefore, cautious investors can choose to simply avoid the stock altogether.
On the date of publication, David Moadel 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.