QuantumScape (NYSE:QS) stock has once again been a profitable trade for meme speculators, to the chagrin of its skeptics.
The market reacted positively to the electric vehicle battery developer’s latest earnings release, sending QS stock nearly 40% higher.
As I argued when the ink had to dry on the earnings release, the report itself was pretty lackluster. Losses came in higher than expected, and the company’s latest updates didn’t exactly light the world on fire.
However, despite the market’s reaction to QS’s latest numbers, don’t view this latest round of bullishness as an invitation to buy and/or hold onto a position.
Instead, for those who don’t own it now, it’s a warning that the ship has sailed (for now) to make fast profits with this speculative growth play.
For those holding it, including those who bought ahead of earnings, it’s a clear cut sign to sell.
QS Stock and its Post-Earnings Rally
Again, there wasn’t much needle-moving news in the latest updates with QuantumScape. Instead of further extending its cash burn timeline, this pre-revenue company simply reiterated that it has enough in its war chest to sustain operation until the second half of 2025.
Once again, QuantumScape provided investors with a vague update about its efforts to bring solid-state electric vehicle batteries to market, failing to even estimate when it expects to enter the production/commercialization stage.
With this in mind, why exactly did the market tread this “no news” report as “good news” for QS stock?
Admittedly, there is an answer to this question. The post-earnings rally for QS is not as strange as it may seem at first glance. Even if there wasn’t any strong “good news” with the earnings, there wasn’t exactly much “bad news” with it, either.
As some may recall, this stock has a high short interest. According to Fintel, around 20.6% of outstanding shares have been sold short.
While not for certain, perhaps speculators, realizing there wasn’t much to justify a move lower for the stock, jumped in, causing some of the short-side to close out positions, resulting in a modest short-squeeze.
3 Reasons Why It’s Not Wise to Chase This Stock
While there is some logic behind the latest QS stock rally, that’s not to say it is sustainable. Just like with the stock’s prior price spikes, many of which were fueled by “short squeeze mania, this one could also prove fleeting.
That’s the first reason you shouldn’t buy in today, but it’s not the only reason. Besides the high chance that those who got in ahead of this squeeze cash out, knocking shares back lower, there are two other reasons this high-risk growth play isn’t worth chasing.
As my InvestorPlace colleague David Moadel has pointed out, high competition is a big reason why you should stay away. This EV battery startup isn’t the only company working to build solid-state EV batteries on a large scale.
Other battery makers, and even some automakers, are looking to get into this market themselves. It may prove difficult for QuantumScape to build up a high level of market share.
Not only that, it’s going to take years (and heavy amounts of shareholder dilution) for this company to (possibly) scale into a profitable enterprise.
As I have argued before, this could mean subpar returns for anyone buying the stock at current prices.
Bottom Line: Head for the Exits
QuantumScape’s most recent surge up in price may frustrate to QS like myself, but there is a silver lining for those holding it today. Existing holders of this stock have a golden opportunity to take the money and run.
If you are a long-term QS investor, selling today at around $13 per share gives you the opportunity to cut on losses, if you bought in at higher price levels.
If you bought in ahead of earnings, or perhaps when this stock was changing hands for as little as $5.11 per share, the latest rally gives you the opportunity to take profit in a big way.
However, while the opportunity to cash out a favorable price for QS stock has emerged, do not expect it to last long. Barring the unveiling of some needle-moving news for the company, chances are a return to single-digit prices soon lies ahead for shares.
On the date of publication, Thomas Niel did not hold (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.
