Is QuantumScape stock too risky after guiding higher Capex than expected?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Oct 27, 2021
  • QuantumScape shares on Wednesday plunged after issuing a higher-than-expected Capex.
  • The company said FY2022 capital expenditure will be significantly higher than 2021.
  • QS earlier missed Street GAAP earnings per share and announced $1.5 billion in liquidity.

On Wednesday, QuantumScape Corp (BMV:QS) shares plunged by nearly 9% after saying the company expects a higher Capex in FY2022 compared to 2021. The company announced its FQ3 results Wednesday before markets opened, missing the consensus Street estimate for GAAP earnings per share.

QuantumScape posted a GAAP EPS of -$0.13, $0.03 below Street estimates. The company also said it ended the quarter with $1.5 billion in liquidity, including $39 million in warrants exercised during the quarter.

Is it too early to bet on QS stock?

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From an investment perspective, QuantumScape shares trade at a steep P/B ratio of 6.89, making the stock less attractive to value investors. However, analysts expect the company’s earnings per share to grow by 89% this year.

Therefore, it could potentially be on growth investors’ radar. 

However, although QS shares are down more than 53% this year, the stock is still up more than 88% over the last 12 months.

Therefore, it may be too early to consider betting on QuantumScape’s promising growth given its current valuation.

Source – TradingView

The pullback may not be over

Technically, QuantumScape shares seem to be trading within a descending channel formation in the intraday chart. However, the stock also appears to have advanced to trade closer to the 100-day moving average, pushing the price towards the trendline resistance.

In addition, QS shares still trade several levels off oversold conditions, leaving room for more downward movements. Therefore, investors could target extended declines at about $18.88, or lower at $13.86. 

On the other hand, if the stock completes an upward breakout, it could find resistance at about $27.89, or higher at $32.54.

Is it safe to buy QS stock?

In summary, although QuantumScape shares have plummeted by more than 53% this year, the stock is still up more than 88% over the previous 12 months. 

Therefore, given the company’s steep valuation multiples, it may be best to wait for the price to retest current support levels before betting on its exciting growth prospects.

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