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September 01, 2020 1:20pm
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1 F-Rated Stock in an A-Rated Industry

The soaring demand for automotive parts is poised to keep the industry well-positioned for a positive growth trajectory. However, auto parts stock QuantumScape (QS) appears to be far from witnessing a recovery from its dwindling financial performance anytime soon. Given this backdrop, it could be wise to avoid this auto parts stock now. Read on…

The performance of the auto industry was hampered amid macroeconomic headwinds last year. However, the pent-up demand for Electric Vehicles (EVs) could propel the industry’s growth.

The global automotive parts and components market is projected to reach $2.27 trillion in 2031, growing at a CAGR of 2.4% between 2023 and 2031. Although the auto parts industry is poised for an uptick, QuantumScape Corporation’s (QS) performance seems to be deteriorating.

QS is a development stage company that focuses on developing and commercializing solid-state lithium-metal batteries for EVs and other applications.

The EV market, particularly the battery segment, is rapidly evolving and highly competitive. With the introduction of new technologies and the potential entry of new competitors into the market, QS expects competition to increase in the future, which could harm its business, results of operations, or financial condition.

QS incurred a loss from operations of approximately $420.62 million and an accumulated deficit of approximately $2.4 billion from its inception in 2010 through the year that ended December 31, 2022.

QS believes that it will continue to incur operating losses each quarter until it begins significant production of lithium-metal solid-state batteries, the production of which is not expected to occur anytime soon. Moreover, the rate at which losses occur in the future is anticipated to be significantly higher.

The stock has plunged 57% over the past year and 4.2% over the past six months to close the last trading session at $7.73. The stock is anticipated to plunge further, given its weak fundamentals. Wall Street analysts expect the stock to plunge to $7.33 in the upcoming 12 months, indicating a potential downside of 5.2%.

Here are the factors that could influence QS’ performance in the upcoming months:

Disappointing Financials

For the fiscal year that ended on December 31, 2022, QS’ comprehensive loss attributable to common stockholders stood at $425.57 million, up 748.7% year-over-year. Its net loss per share came in at $0.95 for the same year, up 82.7% from the year-ago period.

QS’ total current liabilities stood at $46.81 million as of December 31, 2022, compared to $30.61 million as of December 31, 2021. Also, total cash, cash equivalents, and restricted cash stood at $252.92 million compared to $338.22 million as of December 31, 2021.

Unfavorable Bottom Line Estimates

For the fiscal third quarter (ending September 2023), QS’ EPS is expected to come in at negative $0.19. For the fiscal year ending December 2023, its EPS is expected to come in at negative $0.77.

For the fiscal year ending December 2024, analysts expect QS’ EPS to decline 4.2% year-over-year to negative $0.80, and revenue is expected to come at $7.53 million. Furthermore, the stock failed to surpass the EPS estimates in three of the trailing four quarters, which is disappointing.

Low Profitability

QS’ trailing-12-month ROCE, ROTC, and ROTA of negative 28.17%, 16.90%, and 27.92% compare to the 11.79%, 6.34%, and 3.92% industry averages, respectively. Also, its trailing-12-month cash from operations is negative $218.02 million compared to the industry average of $150.20 million.

POWR Ratings Reflect Bleak Outlook

It is no surprise that QS has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. It has a D for Value, in sync with its stretched valuation, as in terms of forward Price/Book, QS is trading at 2.97x, 17.3% higher than the industry average of 2.53x.

Its D grade for Sentiment is in sync with its unfavorable bottom-line estimates. Also, the D grade for Quality and Stability is consistent with its lower-than-industry profitability and a five-year beta of 5.27, respectively.

Within the A-rated 59-stock Auto Parts industry, it is ranked last.

To see the other ratings of QS for Growth and Momentum, click here.

View all the top stocks in the Auto Parts industry here.

Bottom Line

QS’ disappointing performance in the last quarter of 2022 might deteriorate further, given the plethora of economic headwinds. The stock is trading below its 50-day and 200-day moving averages of $8.41 and $8.74, respectively, indicating a downtrend.

Furthermore, given its mounting losses, low profitability, and stretched valuation, it could be wise to avoid this auto parts stock now.

Stocks to Consider Instead of QuantumScape Corporation (QS)

Unfortunately, the odds of QS outperforming in the weeks and months ahead are greatly compromised. However, there are many good stocks in the Auto Parts industry with impressive POWR Ratings. So, consider these three A-rated (Strong Buy) stocks instead:

BorgWarner Inc. (BWA)

Gates Industrial Corporation plc (GTES)

Bridgestone Corporation (BRDCY)

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QS shares were unchanged in premarket trading Wednesday. Year-to-date, QS has gained 36.33%, versus a 7.54% rise in the benchmark S&P 500 index during the same period.

About the Author: Sristi Suman Jayaswal

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.


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