Quantum computing is one of the hottest investment trends right now after artificial intelligence (AI), and one company that has garnered a lot of attention from investors is Quantum Computing, Inc. (QUBT 3.54%), also known as QCi.
The company's share price has climbed 526% over the past three years, as investors have become increasingly optimistic about QCi's prospects. However, I'm not confident that this quantum computing stock is worth owning. Here's why.
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1. QCi's revenue barely registers
In its third-quarter earnings report, QCi reported just $384,000 in sales. You might want to read that again, because, yes, the company's revenue is in the hundreds of thousands, not millions.
Revenue that's barely a rounding error for many technology companies is notable, especially when you consider the massive share price gains QCi's stock has experienced over the past several years. If you want a clear sign that the market is grossly overvaluing companies based purely on sentiment, look no further than QCi's 526% increase over the past few years despite generating just $384,000 in sales.
2. Sustained profitability is likely a long way off
Some investors may have been excited to see that QCi reported net income of $0.01 per share in Q3, a significant improvement from the loss of $0.06 per share in the year-ago quarter.
But that increase was mostly the result of a $9.2 million mark-to-market adjustment of a derivative liability. This means the financial change was more of a temporary accounting benefit rather than an indicator of the company's underlying financial improvements.
With its negligible sales and an operating loss of $10.5 million in Q3, QCi has a long way to go before it begins to generate sustained positive earnings.
NASDAQ: QUBT
Key Data Points
3. It could be a decade before quantum computing has significant practical uses
Many growth companies indeed operate at a loss for a while but then become profitable. However, the problem is that QCi is operating in a very unproven market. Quantum computing is making significant strides, but it's worth noting that even major players, such as Alphabet, are skeptical that practical applications of quantum computing are around the corner.
Consider that Google CEO Sundar Pichai said earlier this year that "practically useful" quantum computers are still five to 10 years away. This, coming from a company that released a groundbreaking quantum computing processor last year and recently used a quantum computer to successfully run a verifiable algorithm on hardware -- something Alphabet says it did for the first time in history.
If Pichai is right, then QCi investors may be waiting a very long time to see the company benefit from its technology.
4. Its stock is too expensive
There's a lot of talk about an AI bubble, and there's no doubt that some AI stocks are overvalued. But many of them don't hold a candle to QCi's sky-high valuation, considering its price-to-sales ratio (P/S) is 3,200.
To put that in perspective, the tech sector has an average P/S ratio of just 9, and another high-flying quantum computing stock, IonQ, has a P/S ratio of 163.
What this means for investors who buy QCi stock today is that they're overpaying for a company developing technology in an unproven market, which is spending a significant amount of money and has negligible revenue. Most people would call that a bad investment, this writer included.
For all of the reasons above, it's best to avoid Quantum Computing Inc. stock right now. There's simply too much exuberance for the quantum computing stock despite QCi's lack of sales and high price tag. And if investors begin to move toward a more bearish outlook in the market, overvalued companies with little sales will likely be the first to feel the pain.
