Stock Market

In most, if not all, of my prior articles on QuantumScape (NYSE:QS) stock, I’ve taken a bearish view. However, ahead of the electric vehicle battery company’s upcoming earnings release, I’m taking a second look at the situation.

Don’t get me wrong. QS remains very speculative and at risk of a sharp price decline if the narrative surrounding it cracks. Forget about “bet the ranch.” Even those with a high risk appetite should at best make it a small position in their portfolios.

That said, it may be worthwhile to take a closer look and assess whether there is a valid reason behind the stock’s continued rally, and whether this should change your view on the stock.

What am I talking about? Let’s see what is the best move with QuantumScape ahead of earnings.

QS Stock Earnings Preview

QuantumScape releases its results for the preceding quarter on July 26. As this is a company in the pre-revenue stage, the results themselves, of course, won’t be the focus, although investors will keep an eye on QS’s cash burn during the quarter.

Instead, what will be most important is the investor updates provided alongside the results.

These will determine whether QS stock rips higher after earnings, or if shares experience a post-earnings plunge. In my last article on QuantumScape, I argued that trouble was just around the corner.

That is, with shares rallying because of a recent across-the-board run-up in price among EV stocks, as attention turned back to the company’s fundamentals, the stock was at risk giving back these gains.

Giving this thesis second thoughts, however, the company could be gearing up to unveil some major news.

At least, it’s a thesis worth looking into, given recent price action with the stock. It’s getting more difficult to chalk it up to the latest round of “EV stock mania,” as names like Lucid Group (NASDAQ:LCID) and Rivian Automotive (NASDAQ:RIVN) pull back.

Is There Game-Changing News We’ve Yet to Hear?

So, if other EV plays are reversing, and the next round of news with the company has yet to arrive, why exactly is QS stock climbing pre-earnings? Sure, there is another factor that may explain this situation: the perceived high chance of a short-squeeze.

According to Fintel, which tracks short interest, around 21.4% of QS’s outstanding float has been sold short.

Traders may be buying now, hoping there’s just enough positive news in next week’s earnings report/investor update to spark a post-earnings rally, exacerbated by startled short-sellers scrambling to close out positions.

Yet while this could explain the continued QuantumScape rally, could there be game-changing news ahead?

As always, anything’s possible. Then again, multiple members of the C-suite have been selling stock over the past two months. While company insiders clearly could not buy on this sort of material news ahead of their release, if needle-moving news was arriving so soon, they probably wouldn’t be selling.

Your Pre-Earnings Takeaway

QuantumScape is a speculative growth stock, yet it may be even more speculative to assume that some truly big news lies ahead for this developer of solid-state batteries (or SSBs) for EVs.

The stock’s continued rally may not be anything more than traders chasing a potential short squeeze.

Even if the company has made some additional progress, keep in mind that the stock’s long-term prospects remain questionable.

QuantumScape remains years from reaching commercialization. This, plus likely future shareholder dilution, could lead to subpar long-term returns with your QS investment.

That may not mean you should cash out today rather than next week. Earlier this year, shares spiked before, and up to the day of, what turned out to be an underwhelming earnings report.

Be careful, but the opportunity to sell QS stock into strength at an even higher price could arrive between now and July 26.

On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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