The market made a strong rally yesterday, led by the Nasdaq. And QuantumScape (NYSE:QS) is enjoying an outsized charge higher with shares gaining 3.60%. Now, more than ever, QS stock is a well-timed, risk-adjusted buy.
It’s no secret Wall Street has been a wreck for most stocks in 2022. But it has been particularly tough on smaller, unprofitable growth narratives. After all such companies are typically more sensitive to rising rates, inflation and supply chain challenges. And as a next-generation battery play, QS investors have made worries like that loud and clear.
QS stock is off 50% this year, more than doubling the Nasdaq’s decline of 24%. It’s also one of the more trying examples of investor anxiety, since shares remain more than 90% below its December 2020 all-time-high of $132.73.
What were they thinking then? Something obviously very different from today’s investors. With that said, let’s take a closer look at how to approach investing in QuantumScape today.
Moving Past QuantumScape’s Dirty Laundry
First, let’s get to dirty laundry, which made QuantumScape smell like roses for bears for the better part of the past year and a half. QS stock is losing money. QuantumScape is burning cash. There are no product revenues. There’s execution risk, or as some short sellers have argued, the technology is not viable.
Last but not least, QS was a special-purpose acquisition company (SPAC). Unless you’ve been under a rock or an extended orbit on a SpaceX rocket ship, you know how that fanciful investment scheme played out.
But despite QuantumScape’s less-than-perfect background, it’s time to accentuate the positives and consider why QS stock, now more than ever, is in position to be a multi-bagger opportunity for today’s buyers.
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There’s still no getting around the fact QS’ next-gen, solid state battery technology remains a work in progress. But its advancements have remained strong. InvestorPlace’s Luke Lango believes this past quarter’s 16-layer testing puts the company on a trajectory to launch workable battery samples by the end of 2023 or maybe even later this year.
Examining QuantumScape’s Big Platform for Growth
Source: Charts by TradingView
If Luke is correct, QS is on track to accomplish massive innovation. From mobile devices powered for days and charging measured in seconds or electric vehicles able to go for thousands of miles and replenish their batteries in the time it takes to fill up an ever-costly tank of gas, we’re staring at a game changing technology within the alternative energy market.
To be fair, there’s still obvious execution risk. But thus far QuantumScape has continued to achieve critical milestones in a timely manner. And today, at a mid-cap valuation of just over $5 billion, the runway for explosive market growth and potential eye-popping returns for QS stock investors look more achievable than at any time prior.
What’s more, today’s still critical Wall Street is offering shares of QuantumScape on a “lithium platter.” Much like the outfit’s tantalizing battery, QS stock is sporting a lifetime double bottom pattern backed by an oversold bullish stochastics signal. And for investors that means both compelling upside promise, but also the risk of failure.
How to Trade QS Stock Today
Ultimately there are reasons to be bullish and bearish on QS stock. Critics might stress I’ve missed at least one key component of contention, such as that nasty but critical metal called lithium. But let’s face it, there’s no perfect investment. And besides, could today’s dirty mining of the element be replaced by extracting lithium as a byproduct of desalinized drinking water from the world’s oceans?
Alternatively, I also left out a crucial factor for bulls at this stage in the investment game. This past week, the market signaled a follow-through day. History has shown that rallies don’t have a fighting chance to turn into bull markets without that key price and volume event in place.
At the end of the day, one or both of those influencers and everything else discussed may or may not determine the future course of QS stock. Time will tell. But if you’re like me and you’re positive on QuantumScape, the 2024 Jan $17.50/$35 call vertical is a favorable trading strategy.
On the date of publication, Chris Tyler 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.
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