Meaningful Quantumscape Stock Returns Don’t Require a 5-Year Wait
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I have long maintained that quantum landscape (NYSE:QS) remains the best choice equity investment in solid-state battery technology. It remains true.
Investors need to understand that the ride will be bumpy and most do. As with any stock, the fundamentals are of paramount importance. This is where we will begin to understand QuantumScape.
One of the most important things to note about QuantumScape is that the company is not expected to start generating significant revenue for four years or five years . For many investors, this makes it an exit ban. For them, the argument is that QS stock is therefore unlikely to experience drastic upward price changes. I disagree with this notion. If you want to know why, skip to the next section below.
Otherwise, keep reading as we discuss the fundamentals of Quantumscape.
QuantumScape is a pre-revenue company developing breakthrough technology. This means that the company spends a lot of money on development without seeing any.
The company is spending significant sums on research and development, as expected. For the three months ended March 31, the company spent $61.345 million. And it spends about half as much on general and administrative expenses. $29.312 million was spent during the same period. This R&D to G&A ratio of 2:1 held steady year over year as the company doubled its spending.
The company lost $90.35 million in the last quarter. But investors should expect this trend to continue. And although QuantumScape’s loss of 21 cents per share was worse than the 15 cents per share the loss Wall Street was looking fordo not be afraid.
QuantumScape is expected to have $800 million in cash in 2023. So as a growth stock, QS is fundamentally fine.
The argument is that QS stock doesn’t have much potential to break out before generating significant revenue that won’t happen for another four or five years.
An argument to counter this notion is simple: analysts who cover it give it an average target stock the price of $20.50. Target stock prices are calculated 12 to 18 months into the future. This means that QS stock is up 77% over the next year over a year and a half based on current prices.
So the idea that investors will have to wait four or five years for any significant upside is somewhat absurd. The question then becomes what will propel QS stock higher in the medium term?
Catalysts to Watch
My thesis is that QuantumScape stocks clearly have a great ability to break out based on target prices alone. Investors don’t need to buy now and wait four to five years — betting on commercialization — to win with QS.
Instead, they just need to pay attention to QuantumScape’s progress in scaling its layer-by-layer battery technology. The company successively proved that it could maintain its performance by moving from single-layer cells to 4-layer cells, then to 10 layers and, more recently, to 16 layers.
Investors just need to pay close attention to the company’s progress in scaling up its batteries. The truth is, QS stock will appear when it progresses to full commercialization, not just once it finally becomes a commercial success.
At the date of publication, Alex Sirois did not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.
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