Since January, Quantumscape (NYSE:QS) stock has performed extremely well, even when compared to other speculative growth stocks that have soared higher during this timeframe.
Even after pulling back after skyrocketing ahead of earnings (more below), QS stock remains up by around 91% year-to-date.
Speculators have continued to bid up this early-stage electric vehicle battery company to higher prices, even as the story hasn’t changed much in recent months.
But while this may make it seem like it’s safe and worthwhile to follow their lead, doing so at today’s prices is highly unfavorable, from a risk/reward standpoint.
Why? Although difficult to predict exactly when it will happen, the hype surrounding QS today will eventually fade. Changes in market conditions could at the very least push it to lower prices. At worst, send the stock back down to its 52-week low.
| QS | Quantumscape | $10.31 |
QS Stock Is Still Losing Momentum
Last week, Quantumscape released its latest quarterly results. All-in-all, there was little in the way of progress revealed in this release.
Sure, the company reported a smaller-than-expected loss and reiterated its 2022 achievements, namely the shipping of prototype samples of its 24-layer A0 battery cells to EV makers.
Quantumscape also disclosed its plans to reduce operating costs, in order to extend its cash runway. However, it continues to be years away from exiting the pre-revenue stage.
That said, contrary to what I discussed in my last article on QS stock, there hasn’t exactly been a post-earnings “massacre” for shares.
While the stock did drop by double-digits after earnings, this came following a more than 32% increase in price pre-earnings.
After dropping right after earnings, shares have once again inched higher. Even so, its latest spike notwithstanding, QS’s 2023 rally is still losing momentum.
Factors unrelated to the company’s fundamentals may be enabling it, for now, to find support at around $10 per share.
These factors include the market’s renewed enthusiasm for speculative growth stocks, as well as this particular stock’s appeal as a short squeeze play. However, I wouldn’t expect this to last until Quantumscape announces its next big development.
Sharp Declines Remain Possible in 2023
Given how QS stock has rallied since bottoming out in late 2022, you may think it continues to be “all uphill from here” for shares.
Unfortunately, while external factors have enabled Quantumscape to keep climbing, irrespective of its progress (or lack thereof), this could turn on a dime over the next ten months.
It is questionable whether riskier growth plays will keep coming back into vogue for much longer. A big reason why they’ve begun to come back into vogue has been rising hopes that the Federal Reserve would soon ease, then pivot, on interest rates.
But recent remarks from Fed officials indicate the central bank plans to continue slowly raising interest rates to keep cooling high inflation. A continued climb in rates could apply some moderate pressure on Quantumscape stock, sending it back to single-digit prices.
If inflation proves “sticky,” the Fed may have to get much more aggressive than currently expected. Such a surprise could cause another market sell-off, and keep the overall market in a slump for the rest of the year.
Risky growth stocks like QS would likely experience sharp declines if such a scenario plays out.
The Verdict
If I still haven’t convinced you that Quantumscape isn’t worth buying at current prices, here’s some more food for thought.
As InvestorPlace’s Eddie Pan reported on Feb. 16, one of QS’s largest shareholders, Khosla Ventures, pared its position during the fourth quarter of 2022.
In total, the venture capital fund has reduced its position by nearly 30%. During this time, shares sank from $9 to as low as $5.11 per share.
If a “smart money” insider investor like Khosla Ventures was willing to sell at such price levels, do you want to be buying in today at just over $10 per share? Just something to keep in mind.
Although this company could change the game when it comes to EV batteries later this decade, it remains best to wait for a more favorable entry point with QS stock before buying.
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.