One of Wall Street's biggest winners of the day is QuantumScape, a auto parts company whose shares have climbed 3.7% to a price of $12.57 -- 102.01% above its average analyst target price of $6.22. QS outperformed the S&P 500 index by 4.0% during today's morning session, and by 91.8% over the last year with a return of 108.1%.
QuantumScape Corporation, together with its subsidiaries, focuses on the development and commercialization of solid-state lithium-metal batteries for electric vehicles and other applications in the United States. The company None
QuantumScape does not publish either its forward or trailing P/E ratios because their values are negative -- meaning that each share of stock represents a net earnings loss. But we can calculate these P/E ratios anyways using the stocks forward and trailing (EPS) values of $-0.84 and $-0.86. We can see that QS has a forward P/E ratio of -15.0 and a trailing P/E ratio of -14.6.
As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US consumer cyclical companies is 20.93, and the S&P 500 has an average of 29.3. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From QuantumScape's last four annual reports, we are able to obtain the following rundown of its free cash flow:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2024 | -274,555 | 62,131 | -336,686 | -3.74 |
| 2023 | -240,025 | 84,510 | -324,535 | 13.89 |
| 2022 | -218,024 | 158,845 | -376,869 | -47.74 |
| 2021 | -127,909 | 127,178 | -255,087 | -198.85 |
| 2020 | -61,263 | 24,093 | -85,356 | -65.49 |
| 2019 | -41,731 | 9,846 | -51,577 |
- Average free cash flow: $-238351666.7
- Average free cash flown growth rate: -45.5 %
- Coefficient of variability (the lower the better): 0.0 %
If it weren't negative, the free cash flow would represent the amount of money available for reinvestment in the business, or for payments to equity investors in the form of a dividend. While a negative cash flow for one or two quarters is not a sign of financial troubles for QS, a long term trend of negative or highly erratic cash flow levels may indicate a struggling business or a mismanaged company.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts.
QuantumScape's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 6, so the company's assets may be overvalued compared to the average P/B ratio of the Consumer Cyclical sector, which stands at 2.93 as of the third quarter of 2024.
With a negative P/E ratio., a higher than Average P/B Ratio, and negative cash flows with a downwards trend, we can conclude that QuantumScape is probably overvalued at current prices. The stock presents poor growth indicators because of its no published profit margins with a unknown rate of growth, and a negative PEG ratio.
