A lot of investors are interested in QuantumScape (NYSE:QS) as a long-term wager on solid-state EV battery technology. However, there are plenty of traders interested in QS stock for another reason.
That would be QS’s potential to experience another turbo-charged rally. Such rallies have happened twice this year. Who’s to say a third one can’t happen in the coming months?
While QuantumScape has a history of making swingy moves, it’s very questionable whether another massive run higher is in the cards between now and Dec. 31.
Worse yet, barring the unveiling of a technological breakthrough by this company, shares are more likely to re-test their 52-week low ($5.11 per share), or even hit a new low, than charge back up to double-digit prices.
Why is this the case? Read on, and I’ll break down as to why shares will (more likely or not) stay on a downward trajectory.
QS Stock: Don’t Hold Your Breath
In my last article on QuantumScape, I discussed the company’s upcoming quarterly earnings release (expected to happen later this month), and the possibility of the stock experiencing a post-earnings rally.
After all, the two turbo-charged rallies for QS stock happened around prior quarterly earnings releases.
In a nutshell, I argued that a rally following the release of Q3 results/updates does not appear likely. To back up my argument, I cited many factors. The current market environment, which is becoming increasingly unfavorable to speculative growth stocks, for one.
In addition, the possibility that a surprise capital raise announcement in August soured the stock’s reputation among both fair-weather and “diamond hand” fans of the stock.
I also discussed the stock’s falling short interest, and how this may limit the potential for a post-earnings short-squeeze.
Again, a positive surprise could emerge from the earnings release/update. Failing that, a trip toward prices well below that of current levels is likely.
More Declines Ahead
Sure, I can see why long-term holders of this stock may believe QS stock has found a floor at $6 per share.
With enough cash on hand (around $910 million) to sustain operations in the pre-revenue stage, it may seem as if the stock can continue to find support at this price level, until QuantumScape has game-changing news to announce to the world.
But while you’re free to believe this, keep in mind there’s a lot pointing to the stock finding a new floor at lower prices. Many of these factors are the same ones that could prevent a post-earnings rally from happening.
For instance, a further de-rating of speculative growth stocks (highly sensitive to interest rates) may continue, as the markets keep digesting the fact that interest rates aren’t coming down anytime soon.
Also, according to Fintel, short interest in QS has remained steady so far this month, at around 15.73% of outstanding float.
Yet if the short-side continues to unwind positions, and short-interest resumes dropping, traders holding it only because of its “squeeze appeal,” could exit as well, placing downward pressure on shares.
However, alongside these existing issues, are other factors suggesting lower prices ahead.
As Before, Stay Away
Back in August, I argued that a lack of insider selling is yet another red flag when it comes to QuantumScape and where shares are likely heading from here. Since then, C-suite and board of directors have stayed hesitant to increase their personal positions.
According to insider transaction data compiled by Finviz, since August, the only transactions that happened were those that entailed the exercising of options, followed immediately by the sale of the acquired shares.
CFO Kevin Hettrich entered such transactions during September and October. So too, did board director Jeffrey Straubel.
Besides shares tumbling because of a lack of needle-moving news, higher interest rates, and diminishing “short squeeze” appeal, it’s possible that, like in 2022, QS sells off in late December, due to tax loss harvesting.
Bottom line: stay away from QS stock as many upon many signs point to more losses ahead.
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.