QS Stock Has No Business Trading, and You Have No Business Buying It

Nnn Stocks for development stage companies don’t belong in the public market. Quantumscape (NYSE:QS) stock is Exhibit A.

A QuantumScape sign at the company's headquarters.

Source: Michael Vi/Shutterstock.com

Quantumscape is trying to develop a new kind of lithium-ion battery, one that would be solid, lacking dendrites, the needle-like structures that hurt current designs’ performance and can result in explosions.

Quantumscape has been working on this for 10 years. While they have made progress, they’re nowhere near production. There are none of the metrics investors use to evaluate a company.

Your guess is as good as mine. In the meantime, when you buy QS stock, you should know what you’re buying, which isn’t much.

The Special Purpose Acquisition Company (SPAC) craze was irresistible and, to get $680 million in new capital, QS stock came public through Kensington Capital Acquisition last year.

A Closer Look at QS Stock

Since then, the ride has been epic. You could have paid $14 for this SPAC last November. You could have sold for $130 in late December, or you could have bought then and be looking at shares worth under $35.

How you feel about the ride has everything to do with when you got on and whether you got off.

You could have bought in early February at $44 and sold a few weeks later at $57. You could have bought at that move’s peak, for $66, then sold for $32 after short-seller Scorpion Capital called Quantumscape a “pump and dump scheme.” 

During all that, Quantumscape the company did nothing of significance. Its people continued working. Much coffee was drunk, but there was little real news.

The most important release came on March 31, when Quantumscape said it had met a technical milestone and closed on a $100 million investment from Volkswagen (OTCMKTS:VWAGY).

This was under an agreement first signed the previous May. This came a few days after a secondary offering of stock brought in $478 million. Quantumscape has since added battery expert Celina Mikolajczak to its board.

The Argument

Any company that needs capital is going to do all it can to attract it. Quantumscape signed the Volkswagen deal six months before it came public.

It burned through $1.1 billion during 2020, although only $81 million represented operating expenses. It ended the year with about $1 billion in cash and marketable securities.

Scorpion talked to 9 former Quantumscape researchers and concluded the company hasn’t made a breakthrough. It called claims that its material resists dendrites, charges super-fast, can be recharged over 1,000 times, and work well in low temperatures, false.

Scorpion might be right. But Quantumscape may also be very close to achieving its aims. That’s the conclusion of our Chris Lau. Tezcan Gecgil thinks the stock will bounce around its current level until there is good news.

Other InvestorPlace writers are more bearish. Alex Sirois says the company has a long road ahead of it. Ian Bezek calls it “uninvestable.” Josh Enomoto says there’s no frame of reference for evaluating it and he’s right.

The Bottom Line on QS Stock

All our writers are right. We’re also all wrong.

No one knows how close Quantumscape is to proving its claims. Even CEO Jagdeep Singh may not know.

Quantumscape is like a biotech company with a promising therapy in a first stage trial. The thing may work. The thing may not.

The question shouldn’t be in front of public investors at all.

This is a development-stage company to be evaluated by people with enough capital to place 10 big bets in hopes of making one big score.

Quantumscape should be making its presentation to venture capitalists around a big table with a view of the mountains, not to you and me.

At the time of publication, Dana Blankenhorn directly owned no shares, directly or indirectly, in any company mentioned in this article.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at [email protected], tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.

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