In recent coverage of QuantumScape (NYSE:QS), I have discussed many of the recent developments with QS stock. These include the company’s recent earnings release, and its surprise capital raise news that happened not too long after.
However, one aspect about this electric vehicle battery play that I have not talked about recently is insider buying and selling trends.
These trends provide little reason for me to change my bearish view on the stock.
Yes, members of QuantumScape’s C-suite and board of directors continue to have skin in the game with this stock. Collectively, they have millions on the line. If QS’s solid state battery efforts are ultimately a dud, they stand to lose big.
Still, take a closer look at insider transactions. There’s much to suggest that shares are likely not a “can’t miss” opportunity at current prices, as I’ll explain further below.
QS Stock and Recent Insider Transactions
Looking up insider transactions for QuantumScape on Finviz (a fantastic, free resource to quickly view this information), the first thing you’ll see is plenty of red.
While there have been some insider purchases of QS stock over the past twelve months, these have been options-exercise transactions. Not only that, after exercising these options (issued at a far lower strike price than present price levels), these insiders have sold these shares in the open market, locking in profits.
Don’t get me wrong, there’s no issue with insiders deciding not to further increase their exposure to this speculative growth stock. However, that these have essentially been the only transactions (outside of a few insider selling transactions that were not related to an options exercise), is quite telling.
As the saying goes, insiders sell for many reasons, but buy for just one. Insiders buy when they are confident the stock will go up in value.
Shares have briefly spiked higher several times so far this year, on speculation that big news for the company is just around the corner, yet the fact insiders have done zero additional buying indicates this is not likely.
Many Roads Point Towards Lower Prices
There is plenty in play that could apply additional pressure on QS stock. For example, the fact that QuantumScape’s timeline to commercialization remains long and uncertain. The company continues to provide vague details about when it expects to move out of the pre-revenue stage, and into the production stage.
If this continues over the next few quarterly investor updates, impatient outsiders could, in turn, continue to cash out of positions themselves, pushing the stock lower. Even if the company begins commercialization sooner than skeptics such as myself believe, a large negative could counter this positive.
As I have discussed previously, that large negative is heavy shareholder dilution. Once the company reaches commercialization, chances are it’ll need to raise hundreds of millions, if not billions, in order to build out its production capacity.
Yet before investor impatience or shareholder dilution have a chance of knocking QS lower, there’s a more near-term risk that could do the job quite well.
Last week, I discussed how this stock could be particularly hard-hit in the next broad market sell-off. There are many possible roads for this stock, but a concerningly-high number of them seem to point towards lower prices.
Bottom Line: Follow the Insiders (Stay Away)
It would be one thing if insiders were buying, despite the myriad of risks and concerns that help to build the bear case for QuantumScape stock.
This might indicate that, despite the poor outward appearance, the company was on the verge of reaching a big breakthrough/major progress, with its development of solid state batteries for EVs.
Unfortunately, this is not the case. Instead of backing up the truck, QuantumScape’s insiders are collectively reluctant to add to their positions.
This casts significant doubt that any positive surprises will soon emerge.
With this in mind, atop issues like a long commercialization timeline, future shareholder dilution, and other concerns (like competition from other SSB contenders), there’s a clear takeaway.
Follow the lead of QS stock insiders. Take some (or all) your chips off the table if you own it. If you do not own it, stay away.
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.
