With QuantumScape (QS) touching $50, we've hit full insanity again to end the last trading day of November. This recent reverse-merger via a SPAC has solid backing for its solid-state lithium battery concept. Any company with the name Bill Gates attached to it definitely gets attention and a premium. And the company holds patents in one of the hottest sector of the market, electronic vehicles, a market positioned to potentially outperform over the coming years.
The problem comes down to valuation. In their pitch to investors, the company outlined its future enterprise value and then backed into a discounted enterprise value of $12.579 billion. This EV was used as justification on the deal. And I don't disagree with it.
With 447.6 million shares outstanding post-merger, which does NOT include the additional shares that the warrants could introduce, the current Enterprise Value is now above $20 billion with a market cap closer to $22 billion.
In short, the stock is now trading roughly 25% above management's own high-end discounted enterprise value.
Let me repeat that, the company is now 20%-25% ABOVE management's own view of valuation.
QS has a ton of potential but has yet to produce a marketable product. I do believe it will, but we're not looking at revenue until 2024, maybe 2025. And we're not looking free cash flow until 2027 or 2028. While I understand the market is a forward pricing mechanism, we're pricing in all the forward and then some and we're still in 2020.
In my view, one needs to be careful chasing here.
On another note, could Nikola (NKLA) kill the EV space and the SPAC space yet again? Two birds, one stone.
After announcing a "deal" with General Motors (GM) in the pre-market, the stock jumped in Monday's pre-market. With the news GM wouldn't be taking any stake nor working with the Badger, which was later announced to be on hold, NKLA plummeted. Shares are now down over 20% in Monday's trading after being up 40% in the pre-market. That's a Scrooge Christmas move if you've ever seen one.
If you're chasing anything up 100% in a day or two, just be careful out there.