Is it Advisable to Purchase Quantum Computing Shares while the Value Remains under $15?
Recently, quantum computing has been gaining popularity, and folks are eager to invest in this technology that will eventually fuel the artificial intelligence (AI) market. One such company that has caught my eye is Quantum Computing, or QUBT (-4.50%). The stock saw a major surge towards the end of 2024 but took a dip after Nvidia CEO Jensen Huang claimed that useful quantum computing technology is still decades away. With shares trading at half the price they once were, is QUBT stock a steal at just $11 per share? Let's delve into it.
Share price isn't always an indicator of value
Many novice investors make the mistake of judging a company based on its share price. They might deem a stock like QUBT as a bargain given its seemingly low price of $10. However, this isn't always the case. Thorough valuation analysis requires much more than a simple glance at the stock price.
It's important to also consider the number of outstanding shares. By multiplying the number of shares by the stock price, you can determine the company's market capitalization. The market cap of QUBT right now is around $1.4 billion, so even though you're purchasing shares for $11, you're investing in the company at a valuation well over $1 billion.
Evaluating QUBT's valuation
Given that QUBT is still a developing business that isn't consistently profitable and likely to remain a cash-burning entity, earnings-based ratios aren't useful for evaluation. Instead, we can use the price-to-sales (P/S) ratio to assess Quantum Computing. Over the past year, QUBT has generated total sales of approximately $386,000, giving the company a P/S ratio of over 3,600. While high valuation multiples might be warranted at times, Quantum Computing's P/S ratio of 3,600 is disconnected from reality.
Should you buy QUBT stock now?
QUBT's lack of revenue and high cash burn rate pose a problem. The company only has around $3.1 million in cash on hand and will likely turn to issuing shares to maintain operations if liquidity becomes an issue. Given that, if you decide to buy QUBT stock at its current valuation, you'll be diluted if the company issues more shares to raise capital.
In my opinion, QUBT is far from being a good buy. Despite the low share price, the company is significantly overvalued. I recommend investors to steer clear of QUBT and explore other opportunities in the AI sphere instead.
Despite the low share price, it's crucial to consider the company's market capitalization when investing in QUBT. With around 140 million shares outstanding, QUBT's market cap currently stands at approximately $1.56 billion, implying that even at $11 per share, investors are still entering a significantly valued finance sector.
Moreover, while evaluating QUBT's potential, it's essential to consider alternative investment options in the growing AI market. Despite the challenges facing Quantum Computing, other companies in the space may offer more promising returns on investment, making diversification a crucial part of any portfolio-building strategy.
