Stock Market Latest

Zooming higher to the tune of 12.25% on May 22 and holding steady at yesterday’s close QuantumScape (NYSE:QS) stock may be popping back on your radar.

To some, this sharp spike in the price of QS stock may seem like a sign that a comeback for shares in this electric vehicle battery technology company is taking shape.

However, there’s little to indicate that this is the case. In the immediate term, the stock could continue to rally, but chances are it’s a matter of “when” rather than “if” this rally reverses course.

Once key issues are top of mind amongst the market, the stock will cough back these gains, and drift back to prior levels. If that’s not bad enough, these issues are set to persist. With this, a move to even lower prices may be in store.

Why Did QS Stock Rally This Week?

Typically, a double-digit move higher for a stock comes on the heels of a major company announcement, or from news headlines that indirectly bode well for the prospects of the underlying company.

Yet for QuantumScape’s rally this week, it is difficult to chalk it up to recent news/developments.

There have been few headlines about QS stock so far this month. In fact, most of the more recent headlines came about in late April, when this upstart last reported quarterly results.

With shares moving higher on zero news, that leaves one other likely driver of this rally: renewed enthusiasm about a possible short squeeze.

According to Fintel, around 20.23% of QS’s outstanding float has been sold short. Even if there’s a lack of news, a sudden inflow of buying can sometimes drive such a move.

Whatever the root cause, as of this writing, it’s unclear whether this rally will fizzle out within one trading day, or if it has the potential to extend for several trading days. Nevertheless, steering clear is your best move. Here’s why.

The Bear Case Is Stronger Than the Bull Case

Still in the pre-revenue stage, as it works to turn its solid-state battery technology into a scalable product, current results cannot justify the current market cap of QS stock ($3 billion).

However, a few years down the road, if QuantumScape’s batteries make it to market, this company could not only justify a $3 billion market cap, but perhaps justify an even higher valuation.

Despite this promise, though, other factors point to the bear case being stronger than the bull case.

For one, QuantumScape has recently updated the investing public on its progress, yet has remained vague in providing an updated timeline to commercialization. It’s also far from a given the company’s efforts result in a salable product.

That’s not all. As I argued earlier this month, QuantumScape will likely need to raise billions more to fund further development and commercialization. Dilution from additional capital raising will reduce upside potential, creating a less favorable risk/return proposition.

Your Best Move

Whether short-squeeze speculation, or something else unrelated to fundamentals, whatever is driving QuantumScape’s latest rally will likely soon fizzle out. Because of its popularity with retail speculators, QS has a history of experiencing big-but-temporary surges in price.

Barring the release of some unforeseen game-changing news from the company, once the latest frenzy fades, the aforementioned issues (hazy commercialization timeline, dilution risk) will come off the back burner.

When that happens, QS is very vulnerable to snap back to lower prices. It likely will not take much to send shares back to the mid-single digits.

In the months ahead, as reaching the production stage remains far away, and cash burn continues, the stock could re-hit its 52-week low ($5.11 per share), and slump even lower, as dilution concerns intensify.

With this, there’s only one proper move to make with QS stock: sell/avoid.

On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Navigating the tumultuous housing landscape can be a nerve-racking endeavor for long-term investors. With towering home prices, escalating mortgage rates, and a shrinking inventory, the echoes of a potential housing market crash are difficult to ignore. Hence, investors may want to consider which stocks to avoid, if the housing market tanks.

The housing market’s health bears a significant impact on investors’ portfolios, particularly given its substantial weighting in the economy. A steady job market and manageable mortgage rates have kept recession fears at bay. Nevertheless, the trio of high prices, high rates, and low supply continue to create an air of uncertainty for both homebuyers and investors.

A potential recession and a consequent housing market crash could ripple through various sectors, significantly affecting certain stocks. Identifying the top stocks to avoid under these circumstances could be imperative. That said, let’s look at the three stocks to avoid during a housing market crash.

RDFN	Redfin	$9.27
RKT	Rocket Companies	$7.79
OPEN	Opendoor Technologies	$2.36

Redfin (RDFN)

Redfin (NASDAQ:RDFN) is a technology-driven real estate brokerage that has seen big gains in the stock markets this year, doubling up on a year-to-date basis. However, as the financial landscape shifts, Redfin is likely to falter. Persistent inflation and the looming threat of more interest rate hikes from the Federal Reserve should result in increased borrowing costs, potentially cooling off Redfin’s hot streak.

The company’s first-quarter results outperformed expectations, but Redfin’s forecast for second-quarter sales fell short This triggered a modest drop in its stock price. Furthermore, troubling signs in the labor market with headline-making layoffs point to depressed home-buying sentiment. This labor market instability could reverberate for Redfin, significantly impacting its bottom-line.

Currently, Redfin remains very unprofitable, and I think margins are likely to be squeezed further.

Rocket Companies (RKT)

Rocket Companies (NYSE:RKT) is one of America’s leading mortgage underwriters. Over the past year, this is among the stocks that has witnessed a rollercoaster of fortunes.

Rocket saw mind-boggling revenue growth of 270%, with revenue surging to $15.9 billion, over the 2018 to 2020 period. This resulted in RKT stock enticing many meme investors. However, following the pandemic-induced market slowdown and weakening economic conditions, rising mortgage rates took center stage. Rocket’s revenue trajectory plunged downward.

The company’s revenue slumped by $6.0 billion in 2022, more than halving from its peak in 2020. Moreover, 2023 is expected to bring further woes, with analysts predicting a dismal revenue forecast of less than $4 billion, painting a concerning outlook ahead.

With the company teetering on the edge of profitability last year, investors in RKT stock should be bracing for a challenging year ahead, fraught with more losses. According to Tipranks, analysts have assigned a moderate sell rating for the stock, with 1.4% downside from current prices.

Opendoor Technologies (OPEN)

Opendoor Technologies (NASDAQ:OPEN) recently delivered an impressive first-quarter report, alongside promising second-quarter guidance. However, a cloud of uncertainty hangs over its long-term prospects on the back of strong seasonality and the testing conditions its business currently operates in at this time.

Surging interest rates have resulted in a major slump in the housing market, with fewer properties coming to market. This tightening housing supply has cornered Opendoor into widening the spread between its buying and selling prices, thereby stunting revenue growth rates. Indeed, revenue growth in the company’s recent quarter came in at only 8.9% year-over-year, a stark decline compared to its 5-year historical average of 85%.

Furthermore, until the company reaches considerable scale, the company’s profitability outlook remains uncertain. For now, investors might want to proceed with caution with OPEN stock, particularly if the housing market deteriorates further.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines

There’s no denying that Shopify (NYSE:SHOP) stock hit a grand slam with the company’s quarterly results, released earlier this month.

It’s also encouraging to know that Shopify plans to focus on its core e-commerce business and will cut costs by reducing its headcount. On the other hand, investors might want to take it slow with SHOP stock if they feel that it’s overbought now.

Shopify is one of a handful of bellweather U.S. e-commerce businesses, so it’s a big deal when the company announces its quarterly financial data. It might even be said that Shopify’s growth is a sign that America’s economy is thriving, or at least recovering.

Curious investors will surely want to know about Shopify’s plans for the near future. If Shopify can stay competitive and concentrate on e-commerce without undue distractions, this could be a win-win for the shoppers, merchants and shareholders.

Layoffs, the Logistics Assets Sale and Shopify

Without a doubt, Shopify’s first-quarter 2023 financial results, released on May 4, were very impressive, and we’ll delve into the data in a moment. However, there were two pieces of news that definitely caught investors’ attention.

First and foremost, Shopify plans to reduce its headcount by roughly 20%. That’s not great news for anyone who’s being let go, but it means Shopify can reduce its overhead and, hopefully, be a more profitable business.

In addition, Shopify has agreed to sell most of its logistics business to Flexport, a global logistics company. In exchange for this, “will receive stock representing a 13% equity interest in Flexport, on top of its existing equity interest.”

Hence, Shopify is slimming down in multiple ways and focusing on the e-commerce business that made the company a household name.

Plus, Shopify can still make money if its formerly owned logistics assets thrive while under Flexport’s control. It’s a sensible strategy that Shopify’s stakeholders should appreciate.

Is SHOP Stock Overbought?

Before we move on to other topics, let’s break down Shopify’s first-quarter 2023 results. The company’s adjusted earnings of 1 cent per share beat the analyst consensus forecast of a loss of 4 cents per share.

Furthermore, Shopify posted $1.5 billion in quarterly revenue, up 25% year over year. That result exceeded Wall Street’s call for $1.4 billion in quarterly revenue.

And that’s not all. Analysts predicted that Shopify would record $47.7 billion in gross merchandise volume. However, the actual result was $49.6 billion, up 15% year over year. Shopify’s free cash flow improved dramatically. The company had negative free cash flow of $41 million in 2022’s first quarter, but then reported positive free cash flow of $86 million in Q1 2023.

These are outstanding results. Yet, Atlantic Equities analyst Kunaal Malde has a concern. Evidently, Malde believes that the market “has quickly reacted” to “positive developments” surrounding Shopify. Atlantic Equities analyst downgraded SHOP stock on valuation.

Specifically, Malde lowered his rating on Shopify shares from “overweight” to “neutral.” However, interestingly enough, Malde raised his price target on the stock from $55 to $65. Thus, perhaps the analyst isn’t bearish on Shopify despite his valuation-related concerns.

Stay Small or Just Wait With SHOP Stock

Shopify’s layoffs appear to be part of the company’s strategy to slim down and stay focused. This, along with Shopify’s excellent quarterly results, bode well for the company.

If Malde’s concerns about Shopify’s valuation resonate with you, there are a couple of approaches you can take. One idea is to keep your position in SHOP stock small, and consider scaling in if the stock goes down.

Or, you can just be patient and do nothing, and reevaluate your strategy if the Shopify share price declines. Meanwhile, stay tuned for updates as Shopify pursues a smart strategy to cut costs and concentrate on e-commerce.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.