QS: Trade Idea 1
Just to set the stage for these “trade ideas” posts; I classify myself as a value investor, first and foremost. I’m not a ‘technician', and as such, you’ll probably never see a single chart with a trend line or Fibonacci retracement or cup-and-handle come out of this page.
But, with some of the companies that I follow, especially Quantumscape, I think there will be material changes to the business that will happen on shorter, defined, timeframes (see Upcoming Catalysts). If the overall market has done a poor job pricing these upcoming catalysts, then it presents investors that do follow the company an opportunity for favorable risk-adjusted returns. See Anatomy of a Catalyst.
Here’s an idea that I’ve been kicking around for a few weeks now. We know that the next year and a half is pivotal for Quantumscape. We expect low and high volume B Sample deliveries, validation of the fast process separator manufacturing lines (Raptor and Cobra) that should set the stage for further expansion. If Quantumscape executes, we may see a Joint Venture announcement and a vehicle named to enter series production with QSE-5 cells. Of course, if they don’t execute, then Quantumscape will end 2025 with very little runway left in terms of cash, leading to further dilution on unfavorable terms, and miserable stock price underperformance.
If you’re like me, you like the prospects for the company during the next year or so, but you may have already reached your limit for exposure to a single company - especially one who’s stock price has performed so poorly over the last couple of years.
So the question becomes, is there a smart way to add exposure such that I participate in the upside in the event things go well for QS, but limit the downside in the event that they fail to execute (or worse, that they do execute, but the market continues to be unimpressed)?