QS Stock: still in progress, still too early to buy
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After the market closes on April 26, quantum landscape (NYSE:QS) released its results for the March quarter. QS stock has since risen, but it’s worth noting that tech stocks broadly rallied on April 28. Not only that, on earnings day, tech stocks were down sharply for the day. In short, it moves in tandem with the market. It does not move in response to the earnings report.
Simply put, it makes sense. Why? The results were positive, but at the same time in line with expectations. As a pre-revenue company, you can’t get much out of its reported earnings (a 21 cent loss) on its own. Instead, the focus has been on updates to its efforts to bring a solid-state battery (SSB) for use in electric vehicles (EVs). In terms of updates, what the company has reported indicates that it is still moving in the right direction, advancing in the development of its technology. With this, the market found few reasons to be more bullish and few reasons to be more bearish. The story remains unchanged.
So, as it is still on track and continues to improve, is it time to buy some QS stock? Not so fast. Yes, unlike some of the other EV batteries, this one has plenty of substance to go along with the hype.
SSBs are a cheaper and safer alternative to lithium-ion batteries currently in use. Not to mention, longer lasting, longer lasting and faster to charge. As the main developer of SSB, with the support of major car manufacturers like volkswagen (OTCMKTS:VWAGY), Quantumscape is well positioned for significant revenue growth once it is able to commercialize its SSBs. Although pre-revenue today, by the end of the 2020s it could generate billions in revenue.
However, therein lies the problem. Long before he has a chance to have his “breakout” moment, something is likely to happen. This would be a continued decline for Quantumscape shares. Why? As interest rates continue to rise, the discount rate also increases. A higher discount rate will result in a lower present value for the stock.
Not expected to start generating significant revenue until 2026 and 2027, stocks deserve a bigger discount than pre-revenue companies which are expected to take off much sooner. In other words, greater downside risk, as the tech bear market continues. Given its significant downside risk, there is no reason to buy QS stock today.
At the date of publication, Thomas Niel had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.