Is QS Stock Weeks Away From its Next Big Move?

Stock Market

Outside of a bullish sell-side rating issued for QuantumScape (NYSE:QS) stock on Sept. 18, things have been pretty quiet with the EV battery developer over the past two months. However, a few weeks from now, the company is expected to release its latest quarterly results.

Chances are there will not be any big surprises with the results themselves. This is an early-stage, pre-revenue company. That said, alongside the numbers, management will probably provide an update on the company’s efforts to bring a solid-state battery to market.

Considering this, there is potential for shares to make a big move in either direction. So, does that mean it’s time to buy, time to sell, or time to sit tight, if you already own it? Let’s find out.

QS Stock and a Possible Post-Earnings Rally

Right now, with a lack of news, and macro issues like the prospect of a longer-than-expected period of high interest rates, it’s no surprise that QuantumScape shares struggled for most of September. However, in more recent trading days, that has been changing somewhat.

Sure, one can say that QS stock made a slight move higher, now that the market is fully aware of the Federal Reserve’s “higher for longer” stance, and that this factor is now priced-in.

However, along with the fact that this is likely not the case, perhaps the stock is moving back before earnings.

QuantumScape stock has in the past made wild moves following quarterly earnings. For instance, last quarter, QS experienced a strong rally post-earnings, thanks to the company updating investors about its cash runway, as well as the status of its commercial product development efforts.

If management provides similar updates on the upcoming earnings release, it may spark a similar move. Yet while there is the potential for this stock to rally later in the month, whether it is a wise move to start building a position now is another question entirely.

Why You May Still Want to Stay Away

A liftoff moment for QS stock within a relatively short period of time may be within the realm of possibility, but is it probable? For starters, it is very speculative to assume that upcoming updates will be as well-received as the updates unveiled back in July.

Not too long after providing investors with rosy cash burn guidance, QuantumScape unexpectedly announced plans to raise additional funding through a secondary stock offering. This surprised investors, and not in a good way.

This unexpected move highlighted the stock’s heavy dilution risk. It also likely made investors more skeptical about future statements regarding cash runway.

Admittedly, this factor likely will not prevent investors from reacting favorably to news related to SSB development progress.

Yet while shares could nonetheless rally after earnings, keep in mind that shares could continue to slide between now and the estimated earnings release date (Oct. 26).

As hinted above, it’s possible that the market has not fully digested “higher for longer;” stocks, especially speculative growth stocks, could keep moving lower, as the market continues to adjust valuations to account for what could be an extended period of high interest rates.

The Verdict

Alongside the factors discussed above, QS’s waning popularity as a short squeeze play may also limit its post-earnings liftoff potential. According to Fintel, short interest is currently around 15.7% of outstanding float. Compare that to late July, when nearly 20% of QS’s outstanding float was sold short.

Taking all of this account, the verdict here is clear. If you’ve yet to enter a position, there’s little reason to dabble in QuantumScape as a quick trade before and after earnings.

If you already own the stock, if you are confident shares will spike post-earnings, feel free to let it ride through the rest of October. Otherwise, cutting one’s losses today may be the better move.

After all, as I pointed out late last month, there’s simply too much working against QS stock right now, including high interest rates, rising competition, and underwhelming commercialization progress.

On the date of publication, Thomas Niel did not hold (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.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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