Is QuantumScape stock a buy?

QuantumScape (QS -1.69%) has disappointed a lot of investors since its public debut. The solid-state battery developer went public through a merger with a special purpose acquisition company (SPAC) in November 2020, and its shares opened at $24.80 and hit a record high of 131, $67 less than a month later.

But today, QuantumScape shares are trading at around $6. It sank for three obvious reasons: It generated no revenue because it hadn’t marketed any of its products, it accumulated steep losses, and it continued to struggle with delays as larger competitors crept into its backyard. So should investors take a contrarian view and buy these downbeat stocks?

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Why QuantumScape missed its initial targets

Solid-state batteries generate electricity with solid electrolytes, which are denser, more stable, store more energy, and charge faster than the liquid electrolytes used in lithium-ion batteries. They are already used in smaller devices such as wearables and pacemakers, but have not been mass-produced for electric vehicles (EVs) because they are more expensive than their lithium-ion counterparts.

QuantumScape’s biggest supporter is Volkswagen (VWAP.Y -2.61%)who started developing solid-state batteries with the company 12 years ago. In 2022, Volkswagen established a new group, PowerCo, to test and industrialize QuantumScape batteries. Volkswagen’s backing led to a slew of investors at QuantumScape’s SPAC-backed debut, even though the company hadn’t yet commercialized any of its batteries.

QuantumScape fanned those flames in its pre-merger presentation, claiming it could commercialize its first batteries in 2024, then grow revenue at an astounding 363% compound annual growth rate (CAGR) from 14 million dollars in 2024 to $6.44 billion by 2028. why QuantumScape shares initially more than quintupled after going public.

But as of this writing, QuantumScape has yet to market its batteries. It has conducted a lot of testing with PowerCo and started shipping the first samples, but analysts don’t expect to generate any revenue from those shipments this year.

QuantumScape missed its initial goals because supply chain constraints made it difficult to acquire new production equipment. It also struggled to hire enough engineers to meet its product development roadmap. While it has faced these challenges, major automakers like it Toyota and Nope began developing their own solid-state batteries. Volkswagen was even in talks with other solid-state battery makers while QuantumScape was struggling.

The long-term outlook for QuantumScape

QuantumScape faces plenty of near-term challenges, but expects to finally start shipping its first commercial batteries in 2025 and ramp up production in 2026. Based on those expectations, analysts believe the company could generate revenue of 5, $4 million in 2025 and $12.3. million in 2026. But it also expects to post a net loss of $465 million in 2025 and a larger net loss of $491.8 million in 2026.

QuantumScape is burning through a lot of cash, but it recently secured a new licensing deal with PowerCo that extends its cash flow through 2028. That lifeline implies that Volkswagen still expects QuantumScape to ramp up its battery production.

But with an enterprise value of $2.3 billion, QuantumScape is still richly valued at 193 times its 2026 sales. That nosebleed valuation will be impossible to justify unless it grows its business significantly over the next few years. It has also increased its share count by 46% since its public debut as it subsidized its salaries with stock bonuses and raised more money through secondary offerings. Its insiders sold 52 times more shares than they bought in the last 12 months.

Is it the right time to buy QuantumScape?

In a best-case scenario, Markets and Markets expects the global solid-state battery market to expand at a CAGR of 41.5% from 2023 to 2030. If QuantumScape actually generates revenue of $12 million in 2026 and grows by a CAGR of 40% over the next four years, could generate revenues of $46 million by 2030.

However, QuantumScape is already trading at 50 times its estimate — so it still looks incredibly expensive relative to its long-term growth potential. So I wouldn’t touch my stock until they actually market their batteries and expand their business.