Investors in QuantumScape (NYSE:Q.S.) have certainly had a rough go of it lately. Shares of QS stock are down more than 25% this year and considerably more from the company’s 2020/2021 peak. Today’s downside move of more than 8% appears to be driven by the company’s recent first-quarter earnings. The results missed the mark on earnings per share, with a loss of 24 cents per share reported, relative to expectations of only 21 cents of losses for the quarter.
This earnings miss led analysts at TD Cowen to lower their price target for QS stock further, from $8 per share to $7 per share. This price target had previously been cut from the $12 level, and most analysts have taken a similar approach. By all accounts, Wall Street certainly seems to consider this stock out of favor right now.
Let’s dive into what drove this downgrade, and why investors appear to be growing bearish on this solid-state battery maker.
QS Stock Declines After Earnings Report, Analyst Downgrade
The future of solid-state batteries may be further out than many thought, leading investors who want to bet on companies like QuantumScape in this space to increasingly focus on cash burn and commercialization. In this regard, QuantumScape’s Q1 numbers don’t appear to have provided enough optimism on these fronts to warrant buying at current levels.
Now, a $7 price target does imply roughly 40% upside from current levels. So, while the Street may be cutting price targets, the average consensus target of more than $6 per share does suggest this stock could be undervalued.
But it’s also true that any company tied to the EV sector continues to see strong headwinds, and companies that continue to burn through cash and miss earnings expectations (especially when expectations are for a significant loss) are feeling the pain more than others. QuantumScape is a company I think will have a difficult path forward, so long as investors continue to hold this view.
Solid-state batteries may be the future, but QuantumScape isn’t the only company in this realm. Thus, I have to agree with the analysts on this price target cut and with respect to today’s market price action.
On the date of publication, Chris MacDonald 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.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
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