A few weeks back, I wrote an (admittedly early) earnings preview for QuantumScape (NYSE:QS). I argued that while a post-earnings surge for QS stock was possible in theory, shares would not spike. It’s too late to lay out another prediction for how the stock could perform in response to earnings, much less place a pre-earnings wager on this risky, volatile speculative growth stock.
However, we can explore possible outcomes for post-earnings price action. Interestingly enough, the best course of action for all scenarios is quite similar.With this, let’s dive in, and see what to do if this stock, after earnings, surges, sags, or experiences zero change to voltage.
QS Stock: What to Do if Positive Surprises Spark a Rally
In the aforementioned “earnings preview” article, I cited numerous factors calling into question the potential for a big jump in price for shares after this upcoming earnings report. For one, the current bearish sentiment toward risky stocks in light of high interest rates.
Also, the fact QS stock investors were blindsided by news of a capital raise just a week after the company’s latest statements about cash runway suggested little need to raise more money in the immediate future. On top of these factors, QS’s dwindling short interest suggested as well a lessened chance of a post-earnings short-squeeze.
But even if there’s little to indicate QS surges sharply later this week, I wouldn’t rule it out completely. Back in August, the company presented a more concrete commercialization roadmap in an investor presentation. Any updates related to this roadmap may bolster confidence that QuantumScape exits the pre-revenue stage sooner rather than later.
Any news about new commercialization partners, beyond just its longtime partner Volkswagen (OTCMKTS:VWAGY), could also help shares get back on track. Yet even if investors react positively to results/updates, sell into strength. Although a post-earnings rally could happen, it may prove fleeting. Here’s why.
Take Similar Action if Shares Pull Back (or Hold Steady)
Even if QS stock experiences a double-digit jump in price, I still would not assume this represents the start of a continued move back to prior price levels. Bullishness for QuantumScape could return temporarily, but other developments directly and indirectly related to the company could mean bearishness swiftly returns.
Besides rising interest rates/bond yields driving a cycling out of growth stocks (highly sensitive to interest rate changes), recent events have investors more downbeat about the electric vehicle sector as a whole. For instance, Tesla’s (NASDAQ:TSLA) poorly received quarterly earnings announcement last week.
A stronger example may be news of battery recycling company Li-Cycle Holdings (NYSE:LICY) pausing construction on a new production facility. Following the Li-Cycle news, Morgan Stanley’s Adam Jonas has argued that this may signal that early-stage EV companies like QuantumScape, could struggle to obtain additional outside funding, as rising costs and interest rates discourage investment.
Again, this is why you should sell into strength if you’re holding QS today. If you’ve yet to buy, these negatives for future sentiment are why it’s best not to run out and buy the stock if it either plunges after Oct. 25, and experiences little-to-no post-earnings price movement.
Bottom Line
I know what you’re thinking. If QS is a sell after earnings if you own it, and a “watch and wait” situation if you’ve yet to buy, at what price level/in what situation do I think the stock is in the buy zone?
In my view, given the risk/uncertainties, QS is only a buy if shares end up falling below book value. Barring a true stock market crash, I don’t see this happening.
Having said this, there is a more favorably-priced high-risk/high potential return solid-state battery (or SSB) play out there: Solid Power (NASDAQ:SLDP), which currently trades at a more than 50% discount to book.
Solid Power’s cash position represents more than 86% of its market cap. All of this may just well make it a more favorably-priced long-shot wager on the rise of SSB technology than QS stock.
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.
