On Tuesday, QuantumScape Corp (BMV:QS) shares soared more than 14% after announcing a strategic deal with a second top-10 original equipment manufacturer. The company said the unnamed OEM committed to collaborating in the evaluation of prototypes of solid-state battery cells.
According to the agreement, if intermediate milestones are met, the OEM would purchase 10 MWh of capacity from the pre-pilot production line facility included in pre-series vehicles.
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The company plans to deliver the intermediate milestones of advanced QS prototypes ahead of the QS-0 production in 2023. The report also indicates that the OEM has already evaluated early cells.
Should you invest in the QS stock ahead of its exciting growth?
Although QuantumScape is yet to swing to profits on a trailing 12-month basis, its bottom line seems to be growing significantly this year. Analysts expect QS earnings per share to grow by 89% in 2021, making the stock an attractive option for value investors.
However, its price-book ratio of 5.59 could dissuade value investors until the point it begins to turn profits. As a result, it could be best to monitor how the company performs in the coming quarters before buying, despite the earnings growth prospects.
Therefore, with shares spiking more than 14% on Tuesday, investors could choose to short the stock in anticipation of a short-term pullback
QuantumScape share price could be facing resistance
Technically, QuantumScape shares appear to have recently spiked following Tuesday’s OEM deal disclosure. However, the stock price seems to be facing resistance around the $23.70 level, creating a perfect opportunity for a pullback.
Moreover, the stock has also surged closer to the overbought conditions of the 14-day RSI. In addition, QS seems to be trading just below the 100-day moving average, adding resistance to more upward movement.
Therefore, investors can target potential short-term pullbacks at about $18.88 or lower at $13.86. However, if the stock price continues to climb following Tuesday’s announcement, it could find resistance at $27.89 or higher at $32.54.
Bottom line: QuantumScape seems poised for an immediate pullback
In summary, although analysts expect QuantumScape to experience significant bottom-line growth this year, the stock seems substantially overvalued, making it less attractive to value investors.
Moreover, QS shares appear to have surged closer to overbought conditions whilst also facing strong resistance at the $23.70 level.
Therefore, it could be time to short the stock ahead of a potential pullback. Alternatively, investors can wait for the price to retest one of the crucial supports before buying.
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