As EV mania cools, is now the time to dive into Kensington Capital (NYSE:KCAC)? Reaching costs as excessive as $25.75 per share final month, Kensington Capital stock has bought off, and now adjustments palms round $14 per share. However this SPAC (blank-check firm), which is buying privately-held QuantumScape, stays a stable play on the way forward for EVs.
How so? QuantumScape isn’t an EV automaker. As an alternative, the corporate goes after what could possibly be a profitable phase of the EV financial system: batteries. However, as a substitute of providing lithium-ion batteries (the trade norm), this firm is seeking to achieve an edge with its line of SSBs, or solid-state batteries.
As I beforehand mentioned, SSBs could possibly be what makes EVs economically viable. That’s to say, speed up the shift from gasoline-powered automobiles to EVs.
Certain, QuantumScape faces a protracted street forward. Its flagship product received’t be obtainable till 2025. But, with main auto names like Volkswagen (OTCMKTS:VWAGY) backing the corporate, it’s clear this development-stage firm has large potential.
So, what’s the play right here? There’s a case to be made that shares will bounce again as soon as its acquisition wraps up. However, tread fastidiously, given the chance in the present day’s EV Bubble will get able to burst.
Why Purchase Kensington Capital Stock Immediately?
There’s no denying the long-term runway with QuantumScape. However, on condition that stated success is years off, why purchase now? I agree, there’s room for concern. Between dangers the EV bubble pops (extra under), in addition to the underlying uncertainty as this firm turns its know-how right into a marketable product, there’s a whole lot of threat shopping for in at in the present day’s costs.
But, whereas it’ll be years earlier than Kensington Capital stock actually “pays off,” there’s potential for a near-term pop to prior price ranges. How so? As InvestorPlace’s Mark Hake calculated final month, the projected value of Quantumscape in 2028 may imply shares in the present day have a gift value round $22 per share.
Certain, valuing a progress stock this fashion is extra an artwork than a science. However, this might sign that threat/return stays in your favor at in the present day’s costs. If others catch onto this, shares may bounce again towards the highs set in September.
However, there’s additionally good purpose why shares may proceed heading decrease. The EV bubble has but to pop. However, it’s onerous to disclaim the passion for the EV is beginning to fade.
And, if stated mania continues to chill, it may be onerous for Kensington Capital stock to remain at in the present day’s costs, a lot much less rally larger.
A Bursting EV Bubble and Different Dangers
A significant threat for Kensington (quickly to be QuantumScape) shares is a crash in EV stocks. The bubble that helped pushed to sector to all-time highs has but to burst. However, shares in main EV names, like Tesla (NASDAQ:TSLA), Nio (NYSE:NIO), and Workhorse (NASDAQ:WKHS) have topped out, or headed decrease, in current weeks.
Whereas enthusiasm stays pretty excessive, additional draw back could possibly be on the horizon. We all know that’s a giant threat for these aforementioned names, which have every multiplied in value to this point this yr. However, how will newly-minted EV stocks like Kensington fare if the bubble bursts?
An investor exodus from EV stocks may imply large draw back from in the present day’s costs. A sector sell-off may even push shares nicely under their IPO price ($10 per share). Maintain this in thoughts if you’re involved in making the most of the current pullback.
However, a burst of the EV bubble isn’t the one issue that might ship shares decrease within the quick time period. The specter of a brand new publicly-traded EV battery firm may dilute curiosity on this explicit title. As Barron’s reported Oct 6, SPAC RMG Acquisition (NYSE:RMG) is buying privately held EV battery maker Romeo.
Sure, evaluating QuantumScape to Romeo isn’t actually apples-to-apples. However, with extra methods to speculate on this rising trade, traders may unfold their bets extensively. Some who maintain Kensington shares now may promote them, and plow a few of it right into a Romeo place.
Briefly, there are many the reason why shares may see promoting stress within the close to time period. However, if shares do fall to single digits, take into account such price ranges screaming purchase territory.
Lengthy-Time period Play, Seize Alternative and Purchase the Pullback
With the massive potential of its acquisition goal (QuantumScape), Kensington shares stay a powerful alternative. However not with no excessive stage of threat. The corporate may expertise hiccups because it brings its SSBs to market. The EV bubble may lastly pop, presumably pushing shares right down to single digits. And now, with one other EV battery title going public, curiosity on this play may fade, even when EV stock enthusiasm general continues.
So, what’s the play right here? Lengthy-term alternative with Kensington Capital stock stays. However tread fastidiously, as shares may head decrease within the near-term.
On the date of publication, Thomas Niel didn’t (both straight or not directly) maintain any positions within the securities talked about on this article.
Thomas Niel, contributor to InvestorPlace, has written single stock evaluation since 2016.