In 2020, QuantumScape (QS +2.91%) was one of the hot stocks to hold, according to Wall Street. The stock back rose as high as $115 per share with a market cap approaching $50 billion. Investors then swooned over the company's potential to revolutionize electric vehicle charging through solid-state lithium-metal battery technology.
After a steep decline starting in 2021, shares now trade at just $4, with the company having a market cap of around $2.2 billion. Some investors now wonder if it's time to buy this diamond in the rough. If you are one of them, get familiar with three financial metrics.
NASDAQ: QS
Key Data Points
QuantumScape investors need these numbers to improve
Compared to current technologies, QuantumScape's QSE-5 solid-state batteries have notably superior energy density and charging times. The company's batteries thus allow an EV to go further on a single charge and "refuel" significantly faster. Since long-term forecasts call for sizable growth in EV demand for decades, QuantumScape has an opportunity to ride a market tailwind with its superior products.
The issue is that major automakers like Toyota, Hyundai, and Nio, as well as some start-ups, are developing their own solutions. So while QuantumScape has an impressive offering today, competition will grow as its end market grows.
QuantumScape is a growth stock, but it needs to show growth to succeed. To see if QuantumScape is on the right path, investors should keep an eye on metrics like available cash, average share totals, and net income.
Data by YCharts.
QuantumScape responded to competitive pressures by more than doubling its R&D budget between 2021 and now. The cash burn created is becoming a serious problem. Net losses continue to widen on an annual basis, causing cash levels to wither and shares outstanding to balloon to shrink the funding gap.
By no means is QuantumScape on the verge of bankruptcy. But it may soon be forced to take on expensive debt, onerously dilute shareholders, or cut critical spending areas like R&D. Shares are cheap versus historical levels, but tough choices are ahead for this once-hot growth stock.
