After the market closed on April 26, Quantumscape (NYSE:QS) reported its results for the March quarter. QS stock has been up since then, but it should be noted that tech stocks overall rallied on April 28. Not only that, on the day of earnings, tech stocks were down big for the day. In short, it’s moving in tandem with the market. It’s not moving in response to the earnings report.
Put simply, this makes sense. Why? Results were positive, yet at the same were in line with expectations. As a pre-revenue company, there’s not much you can take away from its reported earnings (a loss of 21 cents) themselves. Instead, the main focus was updates on its efforts to bring a solid-state battery (SSB) for use in electric vehicles (EVs). In terms of updates, what the company reported signaled that it’s still moving in the right direction, making progress developing its technology. With this, the market found little reason to be more bullish, and little reason to be more bearish. The story remains unchanged.
So, as it’s still on track, and still making progress, is it time to buy QS stock? Not so fast. Yes, unlike some of the other EV battery plays out there, this one has plenty of substance to go with the hype.
SSBs stand to be a cheaper and safer alternative to the prevailing lithium-ion batteries used today. Not to mention, longer-lasting, more durable, and faster to charge. As the leading developer of SSBs, with backing from major automakers like Volkswagen (OTCMKTS:VWAGY), Quantumscape is well positioned to see tremendous revenue growth, once it’s able to bring its SSBs to market. Although pre-revenue today, by the late 2020s, it could be generating billions in revenue.
However, therein lies the problem. Well before it has a chance to have its “breakout” moment, there’s something that has a high chance of happening. That would be a continued move lower for Quantumscape shares. Why? As interest rates continue to move back up, so too does the discount rate. A higher discount rate will result in a lower present value for the stock.
Not expected to start generating material revenue until 2026 and 2027, shares deserve a larger discount than pre-revenue companies expected to take off much sooner. In other words, greater downside risk, as the tech bear market continues. Keeping in mind its heavy downside risk, there’s little reason to buy QS stock today.
On the date of publication, Thomas Niel 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.