The next big event for QuantumScape (NYSE:QS) falls on April 26. That’s when the electric vehicle battery technology company reports its latest quarterly results. Even as QS stock has been pulling back, in the days leading up to the earnings call, you may not want to dive in on hoping to book a fast profit.
Much still suggests that QS is more likely to experience a post-earnings plunge rather than a post-earnings spike.
Yet beyond just holding off on this “future of batteries” play ahead of earnings, you may want to skip out on buying it after earnings as well.
Given that so much of its valuation is based upon future potential, it’s questionable whether shares would be a bargain, even at prices well below present levels. With this, let’s dive in and see why it’s so imperative to stay away.
| QS | QuantumScape | $7.82 |
QS Stock Could Drop After Earnings
Barring an unexpected twist in the next trading day, I wouldn’t count on QuantumScape shares benefiting from a short-squeeze.
As you may recall, that happened ahead of the company’s last earnings release back in February.
Still, I wouldn’t rule out the possibility of QS stock experiencing a double-digit decline immediately after they release results post-market on Wednesday.
As I argued recently, there are many ways the forthcoming results and guidance from the EV battery developer may cause a negative reaction among investors.
Although investors know well that this is a pre-revenue company, there may be some surprises. For example, QuantumScape could end up reporting higher-than-expected cash burn.
Guidance may also suggest that cash burn in the coming quarters could come in higher than previously anticipated. The market could react by bidding QS shares lower, on the expectation of heavier future dilution from additional capital raises.
Alongside this, I’ve also argued that what QuantumScape doesn’t say in this earnings report could be detrimental to the stock.
A lack of new updates on its development and/or a lack of updates regarding strategic partnerships may also drive a post-earnings drop.
Why Long-Term Prospects Aren’t Much Better
Not only is QS stock too risky to buy ahead of earnings. Even if shares drop by a greater degree than I expect, buying in after earnings could also end up being an unprofitable move.
Undoubtedly, QuantumScape has a $3.3 billion valuation based largely on potential, however, the narrative isn’t founded solely on hyperbole and no substance. Already at the prototype stage, the company has a strong chance of making it to the mass production stage within the next few years.
But whether this will translate into a rebound for QS, is another question entirely. Per management, the company has enough cash to fund operations until the latter half of 2025. However, besides it being unclear whether QuantumScape will need to pull forward this cash exhaustion date, it’s unclear how much additional cash it will need to raise to finance its most to mass production.
Further shareholder dilution may just well eat up most of the potential upside with this stock. Upside may be further limited, if this upstart, like other EV manufacturing upstarts, experiences issues reaching profitability, even after it is well into the mass production stage.
The Verdict
In the near-term, the takeaways from QuantumScape’s latest earnings report could result in investors de-rating QS to a much more discounted valuation.
Over a longer timeframe, this trend could continue. The market isn’t likely finished factoring in the impact of future shareholder dilution. In addition, the prospect of profitability not arriving until many years after QS enters the mass production stage, an event that’s itself several years away.
High uncertainty is without question par for the course when it comes to investing in situations like QuantumScape. However, weighing risk against reward, there’s little reason to consider rolling the dice with this particular name.
Even the most risk-tolerant of investors should continue to place QS stock in the “hard pass” column, and stick with more promising speculative growth plays with far fewer unknowns.
QS stock earns a D rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.