Sell QuantumScape Stock After Recent Rally

Stocks to sell

QuantumScape (NYSE:QS) is back on the upswing. After a difficult year for QS stock, shares have doubled in recent weeks. The stock is still down sharply from its old highs, but at least shareholders have some reason for optimism.

Source: Michael Vi/Shutterstock.com

There are two things powering up QuantumScape here. For one, the company announced an independent test of QuantumScape’s batteries with favorable results. Also, electric vehicle (EV) shares are suddenly hot once again. However, QS stock owners might want to cash in while the getting is good.

QuantumScape Pops On Test Results

A battery testing firm named Mobile Power Solutions tested QuantumScape’s batteries. On October 27, QuantumScape presented the Mobile Power Solutions results to the public, saying that they demonstrated the batteries met expectations in what were described as “automotive-relevant conditions.”

QuantumScape CEO Jagdeep Singh stated that: “We are happy that these independent test results substantially replicate the cycling performance we reported at our December 2020 Battery Showcase […] With the publication of this report, we will continue to focus on our product roadmap goals and delivering cells to our customers.”

These test results are an incremental positive for QuantumScape. However, many of the questions raised about the company, such as those found in the Hindenburg short report, focused on whether or not the technology is scalable and cost-effective. These independent test results are something, but they’re far from the final word in whether QuantumScape’s batteries will work in a large commercial setting.

EV Surge Gives QuantumScape A Boost

The test results aren’t the only positive factor driving QS stock right now. Arguably the bigger thing is that EV stocks are suddenly red hot once again.

Tesla (NASDAQ:TSLA) just went on an incredible surge, rising from $700 to $1,250 in recent weeks. Admittedly, TSLA stock has sold off following the news that Elon Musk is starting to sell down some of his holdings in the company. Still, Tesla has been a huge winner in recent months.

That’s not all. Last week, Rivian Automotive (NASDAQ:RIVN) completed its initial public offering (IPO). It became one of the biggest IPOs ever, as the electric truck company sparkled in its debut. After a huge IPO pop, Rivian now has a market capitalization of greater than $100 billion, making it the first-ever company to achieve that feat while having no revenues.

This is good news for QuantumScape on multiple fronts. For one, companies like Rivian and Tesla need better batteries to power all their vehicles. As long as capital keeps flowing into EV companies, the demand will be there for QuantumScape batteries, assuming the company is capable of producing them at scale.

Secondly, QuantumScape itself has no revenues. This wasn’t a problem last year, when QS stock surged to above $100 per share at one point. This year, however, the market has taken a much harder line of EV-related companies that don’t have product revenues yet. Perhaps the huge Rivian IPO will help reverse that trend.

QS Stock Verdict

QuantumScape remains extremely difficult to value. The company doesn’t generate revenues now. And it isn’t set to for the next few years, even if it is able to keep meeting its corporate development timeline.

It’s good news that the company got validation from a third-party tester. That’s better than nothing. However, it merely affirmed what QuantumScape said to the public last year about its batteries. Meanwhile the bigger questions are around how the batteries will perform at scale and whether it can get the manufacturing right. Those questions will remain many quarters out into the future before we’ll know the answers.

Meanwhile, the other thing moving QS stock — the rally in EV stocks — could be fleeting. The rise in stocks like Tesla and Rivian doesn’t really matter too much to QuantumScape’s long-term valuation. Rather, QuantumScape needs to build a manufacturing facility and start cranking out tons of batteries.

In the meantime, QS stock will continue to be highly volatile. With a story stock like this, it’s generally a good idea to take some profits when sentiment is at a optimistic point, as it is now.

On the date of publication, Ian Bezek did not have (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.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

Articles You May Like

Small Caps: Unexpected Outperformance Could Drive Gains in a Hurry
These economists say artificial intelligence can narrow U.S. deficits by improving health care
Activist Ananym has a list of suggestions for Henry Schein. How the firm can help improve profits
5 Moonshot Stocks to Buy for 2025 
The AI Stocks Poised to Dominate the Market by 2025