It surfaced last week QuantumScape (NYSE:QS) Stocks could end 2023 on a high note. Despite the lack of new news, QS stock has risen from $5.50 to just under $7 per share since the end of last month.
But with the release of a new sell-side analyst rating for the stock, QS’s performance through year-end, let alone 2024, could be far less stellar than its past price performance, as suggested.
Especially because this pessimistic analyst rating clearly supports the negative assessment of this stock that I and other “QuantumScape skeptics” have expressed in recent months.
So what are the strengths of this recently released analyst rating? Let’s take a closer look and find out.
QS Stock: HSBC Gives a Bearish View on the EV Battery Play
As reported by I’m looking for alphaHSBC’s Wesley Brooks and Laisha Zaack issued their first analyst rating for QuantumScape on December 4th. The pair of analysts gave QS a “Reduce” rating and a price target of $4.70 per share. This price target implies a discount of more than 30% compared to current prices.
In Brooks and Zaack’s research note on QS stock, the sellers point out many of the same issues/concerns that the aforementioned “skeptics” cited in their respective analysis of this young company. For example, the analysts note that QuantumScape has a long road ahead to commercialize its solid-state battery technology for electric vehicles.
The analysts also point out that by the time QuantumScape (potentially) becomes a profitable business, it is likely to burn through not only its current cash position, but also a significant amount of additional cash, which it is likely to acquire through dilutive measures Raising secondary investments will be equity offerings.
In addition to making many of the same points that I and others have made in their pessimistic comments about QS, Brooks and Zaack also provided some estimates that highlight how long it will likely take this company to generate both significant revenue ( 2027) as well as a positive cash flow (2031).
Is a reversal imminent?
HSBC’s pessimistic rating could begin to impact QS stock performance. After rising just before the release of the research note, shares now appear to be on the verge of a change in direction. Yes, HSBC’s assessment is not the only current statement from the sell-side community.
As InvestorPlace’s Dana Blakenhorn discussed last week that Truist’s Jordan Levy (while maintaining his “Hold” rating on QS) recently raised his stock price target. While recent analyst commentary is overall mixed and not bearish, keep in mind that other factors could soon put this stock back on a full downtrend.
As I highlighted a few weeks ago, tax loss harvesting by December 31 could put pressure on QS. Although shares are up over 28% for the year, many investors bought in at prices well above current levels. If any of these investors are still holding out, they may want to sell in this latest round of strength and finally realize their losses.
The market’s increasing “show me” attitude toward electric vehicle stocks could also impact QS’s near-term performance. News of slowing demand for electric vehicles has negatively impacted investor sentiment in the sector.
The downside could be even greater than the last forecast
In addition to the company and industry concerns, another macroeconomic factor could push QS lower from here.
I’m talking about interest rates. Or more specifically, the expected interest rate “pivot” by the Federal Reserve starting next year.
Recent statements from the central bank suggest that it is far from certain that a “pivot” (which would likely trigger a rally in stocks, particularly speculative growth stocks) will occur in 2024.
If interest rates stay high and the other problems persist, forget that stocks will only fall more than 30% next year. Other young EV battery startups like Solid power (NASDAQ:SLDP) trade at a discount to the book value. If the enthusiasm completely fades, the same thing could happen here, which would mean a possible decline to prices below $2.88 per share.
Since the risk of severe losses remains high, you should stay away from QS stocks.
At the time of publication, Thomas Niel did not hold, directly or indirectly, any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s publication policies.