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QuantumScape (NYSE:QS) is a pre-sales technology company working on the next generation of batteries. Since its year-ago listing via a reverse merger with SPAC Kensington Capital Acquisition, QS stock has more than doubled in value.
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Its solid-state technology could allow electric car drivers to enjoy longer ranges and faster charging times, which would make them even more attractive as an option in this increasingly greener world we live in.
At the height of the electric vehicle (EV) mania last year, QS stock closed at $131.67 on December 22, 2020.
As I write this, the stock is changing hands for just over $25 bucks. However, before you go ahead and add more to your portfolio, a word of caution.
QuantumScape has missed earnings estimates in three of the last four quarters. Most recently, the company managed to eke out a surprise profit. The accounting gain is the result of fair value changes for stock-warrant liabilities. Seeing the reaction of the markets, it seems like investors have absorbed this bit of information, and they are not impressed.
Meanwhile, the S&P 500 index and the Dow Jones Industrial Average are hitting new record highs. October is historically a bad month for the markets, with its history of scary crashes, including in 1929 and 1987, which are still vivid memories to many investors today.
Although we have cleared this hurdle, the sense that the markets are in overdrive is real.
The recent run-up in equities has many people worried that there could soon be a correction. This would mean prices go down 10% from their highs, which hadn’t happened since 2020 when lockdowns led to bear markets and big drops of more than 20%.
Considering QS is a growth stock, it could get crushed in a broader correction.
Weakness Means Now’s Time to Buy QS Stock
Much to everyone’s surprise, QuantumScape managed to post a profit in its third-quarter financial results. It was because of an accounting change in the fair value of stock-warrant liabilities. However, despite the profit, the QS stock price suffered a blow.
To make sense of this move, you must appreciate that investors are looking for updates for its batteries more than profit figures.
QuantumScape believes it can revolutionize the way we look at electric vehicles. Its technology promises the world of tomorrow in a battery that doesn’t quit. The company is breaking new ground with its solid-state lithium anode batteries — no liquid necessary for electrons to move about freely.
This means better EV range and safety along with faster charge times, all at a lower cost. Its position as a pioneer is why it has prominent backers like Bill Gates and Volkswagen (OTCMKTS:VWAGY).
Shares in the company have been doing well since July 27, when management released second-quarter earnings. The QS stock has gone up by about 20% in this period, mainly due to excellent battery test results.
The markets value these updates and if you want to trade or invest in this one, timing your exits and entries to press releases on further updates of its innovative batteries is key.
However, also worth noting in the latest results is the company’s cash position. QuantumScape ended Q3 with approximately $1.5 billion in cash, and they expect to finish with $1.3 billion by year’s end — healthy reserves for operational needs.
Broader Market Correction and Infrastructure Bill
Barring the pandemic-induced blip, we have seen a historic bull run over the last decade. However, even after the pandemic hit, the Fed, U.S. government stimuli and retail investors stoked a quick bounce back.
But as much as investors are happy, they are also wondering when everything is going to end. There is no sure way to predict exactly when the penny drops. However, one thing we can say for sure is that growth stocks will bear the brunt of it.
We have already seen electric vehicle stocks come crashing back down to earth after astronomical valuations last year. To understand the phenomenon, you need to go back and look at why these EV plays did so well in the first place.
With most of the world shutdown, environmentalists were over the moon. People liked what they saw when they looked out the window — clear skies.
Most governments around the world had already set aggressive targets for getting to net-zero emissions. However, the pandemic led to an escalation in green policies. It is great news for EV manufacturers like Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO). It also greatly helped companies like QuantumScape, which are offering ancillary services to the industry.
In addition, President Biden unveiled a $2 trillion plan to rebuild infrastructure and bolster the domestic economy earlier this year. That is passing through various stages of the legislative branch of government. Whenever it clears a hurdle EV stocks gain because it has a significant electric vehicle infrastructure component.
But when we take a step back, we will see that all of this has little to do with the internal realities of QuantumScape. The company’s batteries are expected to make their way into Volkswagen vehicles in 2024 or 2025. That means investors need to be patient.
QS Stock Is Enticing After Giving Away Gains
No one can justify the $10.6 billion market capitalization of QS stock at this stage of the game. However, if you want to invest in QuantumScape, this is the right time to do it. As we have seen before, the share price tends to rise after earnings, as the markets ready absorb details regarding the batteries.
In the long run, QS stock has all the makings of a multi-bagger. The technology at the heart of this enterprise has all the potential to be a gamechanger for electric vehicles.
Considering all of these factors, this one needs to be in your portfolio if you believe in EVs and their future. In the next five years, you will look back fondly at this investment.
On the publication date, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.
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