Some financial traders might dream of multi-bagger returns when they invest in electric vehicle battery technology company QuantumScape (NYSE:QS). I’ve warned people about QS stock before, and I’m still pessimistic. However, taking a share position could make sense if the price is right.
Even a low-confidence stock can rally sharply in certain circumstances. For example, a company’s fundamentals might improve from “horrible” to “somewhat less horrible.”
Maybe this will happen with QuantumScape.
My best advice is to be patient and watch QS stock from the sidelines, and only jump into the trade when the share price hits rock bottom.
QS Stock Has a Disappointing August
In case you haven’t noticed, QuantumScape tends to make its stakeholders wait a long time to receive meaningful operational updates. The company’s press releases page shows nothing in August except for the announcement, pricing and closing of a common stock sale.
Thus, as far as I can tell, there were no updates from QuantumScape concerning its progress with getting the company’s products to full commercialization. You may recall that QuantumScape shipped prototype battery cells to automakers, but that was back in late 2022.
In contrast, QuantumScape made fast progress in printing up and selling 37.5 million common stock shares. Plus, QuantumScape gave the underwriters of the public offering a “30-day option to purchase up to an additional 5,625,000 shares.”
We’ll have to wait to see what September brings for QuantumScape and its beleaguered long-term shareholders. Based on QuantumScape’s history, I recommend maintaining low expectations.
Apply the Greater Fool Theory With QS Stock
There’s a principle called the Greater Fool Theory, and it may be applicable here. Here’s my interpretation of the theory. It might be okay to buy a stock even if you know it’s foolish to do so, since some bigger fool will probably come along and buy it from you at a higher price.
Let me break this down. In hindsight, buying QS stock whenever it doubled in price has turned out to be a bad decision. We’ve already witnessed two share-price pop-and-drops in 2023.
Thus, investing in QuantumScape when the share price is high isn’t a great idea. Furthermore, you can’t count on QuantumScape to deliver long-term value to the shareholders, as the company’s financials are in terrible condition.
Just to provide a reminder, QuantumScape still has no revenue and no profits. The company’s operating expenses surged from $95.87 million in 2022’s second quarter to $123.54 million in the second quarter of 2023.
However, if QS stock goes low enough, history shows that some greater fools will probably buy the dip and cause a share-price rally. Just be sure to take profits quickly if you get them, as they can evaporate quickly.
Only Buy QS Stock at This Price
Long-term, I’m actually bullish about the EV battery industry. Yet, I’m frustrated by QuantumScape’s willingness to sell its common shares. QuantumScape needs to provide more frequent operational updates and a specific timeline to full product commercialization.
Still, the Greater Fool Theory might come into play if the QuantumScape share price gets very low. For instance, I recall the time when QS stock bounced sharply off of $5 in late 2022.
Therefore, investors should consider buying QuantumScape shares only at $5 or less. For an even better margin of safety, $4 would be ideal.
Finally, be sure to mitigate your risk by maintaining a small position size, since QuantumScape may disappoint its investors in September.
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.
