Solid-state battery maker QuantumScape (NYSE:QS), a revolutionary company in its own right, saw its stock price drop in late March after announcing a public offering of 13 million shares. QS stock shed about 10% on the news. For long-term investors, this drop is a golden buying opportunity.
I’ve seen it time and time …
First: High-quality, hypergrowth companies with high-flying stocks commence public offerings to raise money at favorable terms to fund future growth pursuits.
Next: The stock drops on dilution fears.
Then: Investors come to their senses and realize all the offering does is give a high-quality company more resources to execute on its compelling growth opportunity.
Finally: Investors buy the dip, the stock rebounds back to pre-offering highs and resumes its long-term uptrend.
I’ve seen this rodeo many times before. The common theme is that for high-quality companies, stock price declines on equity raises are buying opportunities.
QuantumScape is a very high-quality company. Therefore, this drop in QS stock is a buying opportunity.
Here’s a deeper look.
QS Stock Has a World-Changing Battery Technology
The long-term bull thesis on QuantumScape stock is extraordinarily simple.
Yes, QuantumScape is a pre-revenue, pre-product company that is worth $20 billion. Ostensibly, that seems like a grossly bloated valuation. But, QuantumScape is also lightyears ahead of everyone else when it comes to developing and commercializing a new generation of solid-state batteries that could one day change the world.
These batteries will replace not just all electric car batteries, but all batteries everywhere. To that end, this is a company that could one day be printing $20-plus billion in annual revenues.
Long story short, QuantumScape is the brain child of a bunch of extremely smart and capable Stanford physics, computer science and mechanical engineering grads and professors. Together, they have collectively built the world’s first usable, highly effective solid-state battery.
A little context is necessary …
Today’s batteries are built on liquid chemistry. It is pretty much a foregone conclusion that one day, all of these batteries will transition to solid-state chemistry, since solid-state batteries are denser and safer, and therefore, last longer, recharge faster and don’t explode (remember those Samsung phones?).
The big shortcoming of solid-state battery adoption, though, are “dendrites.” Dendrites are basically cracks that form in a solid-state battery when you rush too much charge/energy through it, rendering the battery ineffective.
QuantumScape has figured out how to stop those dendrites from forming. That’s a very technically difficult challenge. No one has figured it out. Except for QuantumScape. So, QuantumScape has essentially “cracked the code” of solid-state batteries. All the company needs to do now is fine-tune this technology and mass-produce a bunch of solid-state batteries to fundamentally change the world.
That’s exactly what the company will do over the next few years. Management will build out the pre-pilot line facility, QS-0, in San Jose. The engineering team will continue to test and fine-tune the technology. Eventually, the company will be producing and selling solid-state batteries to everyone from Tesla (NASDAQ:TSLA) to Apple (NASDAQ:AAPL).
So, yes, QuantumScape has zero dollars in revenue today. But the company is sitting on a battery technology breakthrough that will change the world in the 2020s, and by the end of the decade, result in billions and billions of dollars in annual revenue.
In a nutshell, that’s why QS stock is a compelling long-term winner.
Public Offerings Are Meaningless
QS stock is dropping today because of a pubic offering. But history tells us that public offerings in high-quality, hypergrowth stocks are non-events in the long-term.
Every hypergrowth company has done a public offering of some sort over the past few years — or even multiple (see: Shopify). Almost every time, the stock drops immediately after the news, as investors get worried about dilution. Then, every time, the stock rebounds swiftly and strongly, because the dilution is negligible and the only thing meaningful happening is actually a positive development. That is, a hyperinnovative management team is acquiring more funds and resources to execute on their huge opportunity and bold vision.
That’s a good thing.
Same story with QuantumScape.
QuantumScape is just giving itself a bunch more money and resources to build a larger QS-0 pre-pilot facility than recently announced and expand its QS-1 joint manufacturing facility with VW. Those are positive developments. They mean that QuantumScape is accelerating on its path toward mass production and commercialization.
Sellers of QuantumScape stock here are just being unnecessarily short-sighted in a company that is anything but short-sighted.
Bottom Line on QS Stock
Forget the fact that QuantumScape is pre-revenue and pre-production. This company has a chance to change the world. Specifically, this company has a very visible opportunity to redefine the entire $100-plus billion global battery market. One day, this company will be printing billions of dollars in revenue and billions of dollars in profit. Today’s $20 billion valuation reflects that future reality.
The key with QuantumScape is to keep your eyes on that future reality, and forget all the near-term noise around public offerings and rising yields. Long-term, we will look back at this noise as imperceptible squiggles in the stock chart.
That’s why QS is one of my favorite growth stocks to buy today.
But it’s just one of my top electric vehicle stocks, which represent the cream-of-the-crop when it comes to disruptive technological innovation in EVs. These companies all feature second-to-none management reams and massive long-term potential.
Each of these next-generation mobility stocks could post Tesla-like returns, including a secret startup that’s spearheading the self-driving revolution, and a company I consider my EV “sleeper” stock of the decade.
To see my entire lineup of innovative next-generation EV stocks, click here.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
By uncovering early investments in hypergrowth industries, Luke Lango puts you on the ground-floor of world-changing megatrends. It’s how his Daily 10X Report has averaged up to a ridiculous 100% return across all recommendations since launching last May. Click here to see how he does it.