Over the past week, it has appeared QuantumScape (NYSE:QS) shares could end 2023 on a high note. Despite a lack of fresh news, QS stock has climbed from $5.50 to just under $7 per share since late last month.
But with the release of a new sell-side analyst rating for the stock, QS’s performance between now and year’s end, not to mention during 2024, could end up being far less stellar than price action up to now as suggested.
Mainly, because this bearish analyst rating does quite a bit to back up the bear case for this stock, argued by myself and other “QuantumScape skeptics” in recent months.
So, what are some of the strong points made in this recently issued analyst rating? Let’s take a closer look and find out.
QS Stock: HSBC Drops a Bearish Take on the EV Battery Play
As reported by Seeking Alpha, HSBC’s Wesley Brooks and Laisha Zaack on Dec. 4 issued their first analyst rating on QuantumScape. The pair of analysts gave QS a rating of “Reduce,” and a price target of $4.70 per share. This price target implies more than 30% downside compared to current prices.
In Brooks and Zaack’s research note on QS stock, the sell-siders note many of the same issues/concerns cited by the aforementioned “skeptics” in their respective analysis of this early-stage company. For instance, the analysts note QuantumScape faces a long road to commercializing its solid state EV battery technology.
The analysts also point out that, between now and when the company (possibly) scales into a profitable enterprise, QuantumScape is likely to burn through not only its current cash position, but a substantial amount of additional cash that it will likely raise through dilutive secondary stock offerings.
Besides making many of the same points made by myself and others in bearish commentary on QS, Brooks and Zaack provided some estimates that really take home how long its going to likely take this company to report both meaningful revenue (2027) and positive cash flow (2031).
Is A Reversal Imminent?
HSBC’s bearish rating may start to affect the performance of QS stock. After moving higher just prior to research note release, shares now appear to be on the verge of changing direction. Yes, HSBC’s take isn’t the only latest take out there from the sell-side community.
As InvestorPlace’s Dana Blakenhorn discussed last week, Truist’s Jordan Levy (while maintaining a “Hold” rating on QS), recently upped his price target for shares. Even if the latest analyst commentary is mixed overall rather than bearish overall, keep in mind that other factors could soon put this stock fully back on a downward trajectory.
Like I pointed out a few weeks ago, tax loss harvesting between now and Dec. 31 may place pressure on QS. Although shares are up by over 28% for the year, many investors bought in at prices well above current levels. If any of these investors are still holding on, they may want to sell into this latest round of strength and finally realize their losses.
The market’s increasingly “show me” attitude about EV stocks may also affect QS’s immediate-term performance. News of slowing demand for EVs has negatively affected investor sentiment for the sector.
Downside Could be Even Greater Than Latest Forecast
Besides the company and industry-related worries, another macro factor could slam QS lower from here.
I’m talking about interest rates. Or, to be more specific, the expected “pivot” on interest rates by the Federal Reserve starting next year.
The latest remarks from the central bank signal that it’s far from certain that a “pivot” (which would likely spur a rally for stocks, especially speculative growth stocks) will happen in 2024.
If rates stay high, and the other issues persist, forget about shares merely falling by more than 30% next year. Other fledgling EV battery startups like Solid Power (NASDAQ:SLDP) trade a discount to book value. If the buzz fully evaporates, the same could happen here, implying a possible move to prices below $2.88 per share.
Once again, as the risk of heavy losses remains high, stay away from 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.
