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Amid Rampant Pessimism, Hold QuantumScape Through Its Earnings

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In case you didn’t get the memo, solid-state electric-vehicle (EV) battery maker QuantumScape (NYSE:QS) is set to release its second-quarter financial results after the market closes on July 27. So this begs the question of whether it makes sense to hold QS stock now.

A sign for QuantumScape (QS).
A sign for QuantumScape (QS).

Source: Michael Vi / Shutterstock.com

After the company’s bruising first-quarter loss, it’s understandable if QuantumScape’s current stakeholders are skittish. As the old expression goes, once bitten, twice shy.

On the other hand, contrarian investors can take an entirely different stance. For all we know, it might only take one piece of good news to send QS stock into a post-earnings relief rally.

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So even if you’re not QuantumScape’s biggest fan, QS stock could present a prime trading opportunity. Just maybe, even if the company is not necessarily flourishing, it’s at least improving.

A Closer Look at QS Stock

Without a doubt, my “not flourishing” comment will spark some criticism.

But then, the numbers may indicate that everything isn’t perfect for QuantumScape at the moment.

For instance, QS stock has a trailing 12-month price-earnings ratio of -$6.12. That’s problematic when the share price is around $22.50 this afternoon.

Momentum-focused traders also probably won’t like the stock’s downward trend. Remember, QuantumScape’s share price went as high as $132.73 last year.

With that in mind, long-term investors might choose to wait until QS stock reverses its overall downtrend before taking a long position in the name.

For a quick earnings play, though, QuantumScape looks enticing, as its prior disappointments could lead to a positive surprise.

Hitting the Skids

Admittedly, it’s difficult to erase the memory of QuantumScape’s first-quarter performance out of one’s mind.

At that time, the company reported a pain-inducing net loss of 20 cents per share.

That compares unfavorably against QuantumScape’s 6-cents-per-share loss from the same quarter a year earlier. Moreover, analysts polled by FactSet were only, on average, bracing for a loss of 7 cents per share.

On top of all that, QuantumScape reported zero revenue in Q1.

Plus, adding insult to injury, a scathing report from Scorpion Capital charged that “the company is no different than other recently exposed SPAC promotions and EV frauds.”

According to that report (and I can neither confirm nor deny this), QuantumScape “claims to have a ‘magic material’ that’s led to a breakthrough solid-state battery for electric vehicles.”

Consequently, causal onlookers might conclude that QuantumScape is hitting the skids, both financially and in terms of the company’s reputation.

And now, with an earnings release coming up, where will QS stock go from here?

Low Ratings, High Target

Now here’s where things get confusing. Analysts are both optimistic and pessimistic about QuantumScape, it seems.

How is this possible? Let’s start with the fact that, out of seven analysts covering QuantumScape, only two of them rate the shares a “buy.”

That represents a “buy”-rating ratio of just 29%, which is far below the average of 55% among S&P 500 stocks.

Yet, somehow, the average price target for QS stock among analysts is $40. That’s quite ambitious, considering the share price is below $23.

Perhaps the experts recognize that QuantumScape, as a pioneer in the field of solid-state lithium anode rechargeable batteries, is ahead of the curve.

And it’s possible that the analysts are simply hedging their bets – and their reputations – by reserving their “buy” ratings until after the firm’s Q2 data has been released.

Personally, I never feel the need to get any analyst’s blessing before owning a stock.

If you believe in the company, then there’s no need to dump your QuantumScape shares before the Q2 results are released.

Besides, when the bar is held low, it doesn’t take blowout numbers to impress investors or analysts, for that matter.

The Bottom Line

QuantumScape’s Q2 results will be closely watched by the company’s stakeholders as well as by Wall Street analysts.

The expectations are mixed at best and pessimistic at worst.

And that’s exactly why contrarian traders can hold their positions or even buy more QS stock. After all, when little is expected, great things can happen.

On the date of publication, David Moadel 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.

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