There’s no denying that electrical car battery expertise firm QuantumScape (NYSE:QS) is an early mover in a high-conviction area of interest trade. QS inventory buyers have each proper to be enthusiastic about QuantumScape’s developments in creating solid-state lithium batteries.
QuantumScape’s path to product commercialization doesn’t appear to have any finish in sight. Monetary merchants ought to stay cautious for now.
In principle, there’s nothing mistaken with investing in pioneers and innovators. Positive, it’s a dangerous guess, however an organization like QuantumScape has the potential to construct a distinct segment, next-gen EV battery trade from scratch.
Nonetheless, over the long term, QuantumScape inventory has gone nowhere quick and buyers can solely have a lot religion within the firm.
If QuantumScape doesn’t velocity up its timeline to profitability and supply extra specifics on how the corporate will get there, it is going to be awfully troublesome for the shareholders to remain on the lengthy facet of the commerce.
Danger #1: A Shrinking Capital Place and QS Inventory
Right here’s an instance of why buyers shouldn’t solely depend on company press releases to get the complete image about an organization. QuantumScape’s Kind 10-Q for 2023’s first quarter reveals loads concerning the firm’s monetary state of affairs. The state of affairs isn’t a very good one.
Don’t waste your time looking for QuantumScape’s trailing price-to-earnings (P/E) ratio or something like that. It is a dangerous enterprise that has no gross sales or earnings. In fact, you gained’t discover any press releases from QuantumScape that emphasize these points.
QuantumScape’s quarterly Kind 10-Q reveals some unlucky information concerning the firm. For instance, QuantumScape’s complete working bills elevated from $90.657 million in 2022’s first quarter to $109.978 million within the first quarter of 2023.
Actually, the corporate ought to contemplate value containment as a substitute of spending extra.
Throughout that very same time-frame, QuantumScape’s internet earnings loss grew from $90.353 million to $104.631 million. On high of all that, the corporate’s money, money equivalents and restricted money dwindled from $300.535 million to $258.733 million.
These are troubling developments that definitely don’t bode properly for QuantumScape and its stakeholders.
Danger #2: Gradual Progress Poses a Downside
One other threat for QS inventory is that QuantumScape isn’t transferring rapidly towards product commercialization and profitability. Give it some thought: How lengthy are buyers going to face by a pre-revenue enterprise?
Even probably the most loyal QuantumScape shareholder will solely wait for thus lengthy, particularly if the inventory value is declining.
Positive, it was thrilling when QuantumScape lastly shipped out its first 24-layer prototype battery cells to automotive producers. That was practically 5 months in the past, although.
Relating to updates on ultimately bringing these battery cells to market, QuantumScape offered little something till lately.
In a latest shareholder letter, QuantumScape admitted that it nonetheless has “work to do to enhance reliability as we transition from prototype to business product.” That’s not very encouraging, you have to admit.
Within the firm’s newest Kind 10-Q, QuantumScape offered no timeline within the part titled “Commercialization and Market Focus.”
That’s disappointing, and the corporate ought to have hooked up a date to the assertion that QuantumScape is “at present focusing on the preliminary manufacturing of C-sample battery cells at QS-0.”
Don’t Be Hasty With QuantumScape Inventory
So now, we are able to clearly see two main dangers which might be prone to weigh on QuantumScape inventory. The corporate’s timeline to product commercialization isn’t transferring rapidly and isn’t particular sufficient. QuantumScape’s capital place is transferring within the mistaken course.
It pains me to report these points, as I nonetheless really feel that QuantumScape is a promising pioneer within the EV battery market. That’s only a feeling, although, and the exhausting knowledge doesn’t look encouraging for QuantumScape. Subsequently, potential buyers ought to know the corporate’s dangers and could be sensible to keep away from QS inventory.
On the date of publication, David Moadel didn’t have (both immediately or not directly) any positions within the securities talked about on this article. The opinions expressed on this article are these of the author, topic to the InvestorPlace.com Publishing Tips.
