Keep QuantumScape amid rampant pessimism due to its earnings

In case you didn’t get the memo, maker of solid-state electric vehicles (EV) QuantumScape (NYSE:QS) is set to be . to release financial results second quarter after the market closes on July 27. So this begs the question of whether it makes sense to hold QS stocks now.

A character for QuantumScape (QS).

Source: Michael Vi / Shutterstock.com

After the company’s painful first quarter loss, it’s understandable that current QuantumScape stakeholders are wary. As the old saying goes: once bitten, twice shy.

On the other hand, contrarian investors may take a very different stance. As far as we know, it may only take one piece of good news to send QS stocks into a post-profit relief rally.

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So even if you’re not the biggest fan of QuantumScape, QS stocks can provide an excellent trading opportunity. Just maybe, even if the business isn’t thriving per se, it will at least improve.

A Closer Look at QS Stocks

No doubt my “not blooming” comment will provoke some criticism.

But then the numbers may indicate that not everything is perfect for QuantumScape right now.

For example, QS stocks have a lagging 12-month price-to-earnings ratio of -$6.12. That is problematic if the price is around $22.50 this afternoon.

Momentum-focused traders are also likely to be unhappy with the stock’s downtrend. Remember, QuantumScape’s stock price was as high as $132.73 last year.

With that in mind, long-term investors may choose to wait for QS stocks to reverse the general downtrend before taking a long name position.

However, for a quick win game, QuantumScape looks attractive as the previous disappointments could lead to a positive surprise.

Hitting the skids

Admittedly, it’s hard to erase the memory of QuantumScape’s first quarter performance.

At that time, the company reported a pain-causing net loss of 20 cents a share.

That compares unfavorably with QuantumScape’s loss of 6 cents a share in the same quarter a year earlier. In addition, analysts polled by FactSet were on average only willing to brace for a loss of 7 cents a share.

In addition, QuantumScape reported zero revenue in the first quarter.

Plus, worse, a , damning report from Scorpio Capital accused that “the company is no different from other recently exposed SPAC promotions and EV fraud.”

According to that report (and I can’t confirm or deny this), QuantumScape claims to have “a ‘magic material’ that has led to a groundbreaking solid-state battery for electric vehicles.”

Consequently, causal onlookers might conclude that QuantumScape is slipping, both financially and in terms of the company’s reputation.

And now, with the earnings release looming, where are the QS shares headed?

Low ratings, high goal

This is where things get confusing. Analysts are both optimistic and pessimistic about QuantumScape, it seems.

How is this possible? Let’s start with the fact that, of the seven analysts covering QuantumScape, only two are rate the stock as a “buy”.

That represents a “buy” rating of just 29%, which is well below the average of 55% below the S&P 500 shares.

But somehow the average price target for QS stocks among analysts is $40. That’s pretty ambitious considering the stock’s price is below $23.

Perhaps the experts recognize that QuantumScape, as a pioneer of solid-state rechargeable lithium-anode batteries, is leading the way.

And it’s possible that the analysts are simply hedging their bets — and their reputation — by reserving their “buy” ratings until after the company’s Q2 data is released.

Personally, I never feel the need to get an analyst’s blessing before owning a stock.

If you believe in the company, you don’t have to dump your QuantumScape shares before the Q2 results are released.

Besides, if the bar is kept low, no outbursts are needed to impress investors or analysts.

It comes down to

QuantumScape’s Q2 results will be closely monitored by company stakeholders and Wall Street analysts.

Expectations are mixed at best and pessimistic at worst.

And that’s exactly why contrarian traders can hold their positions or even buy more QS stocks. After all, when little is expected, great things can happen.

At the date of publication, David Moadel had no (direct or indirect) positions in the securities referred to in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publication Guidelines.

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