IONQ - With Too Many Negative Factors to Beat IonQ's Valuation Makes it a Sell

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IonQ (NYSE:IONQ), a company that defines itself as a leader in quantum computing has seen its shares crash 70.23% in 2022, falling from nearly $17.50 in early January to a $5.23 on Jun. 24. The quantum computing firm faces several risks now and its first-quarter (Q1) 2022 financial results showed revenue is made, but this figure is still not meaningful for a company with a market capitalization of $1.03 billion. Is IONQ stock a “buy” today after its steep decline this year?

I personally see no fundamental reason that is in favor of this, as the stock is overpriced. The company made its public debut on Oct.1, 2021 through of a business combination with dMY Technology Group, Inc. III, a special purpose acquisition company.

Scorpion Capital Calls IONQ a Scam

It must tough to be the management of IonQ and read a report by Scorpion Capital with severe accusations. Scorpion Capital has called IonQ a hoax, reporting that it is “a part-time side-hustle run by two academics who barely show up,” and “a scam built on phony statements about nearly all key aspects of the technology and business.” On top of that, Scorpion Capital mentioned that IonQ has “a useless toy that can’t even add 1+1, as revealed by experiments we hired experts to run” and that it generates “fictitious ‘revenue’ via sham transactions and related-party round-tripping.”

These accusations are very strong, but IonQ has responded to them by calling them “important inaccuracies and mischaracterizations regarding IonQ’s business and progress to date.”

The company is determined to build a quantum future. The report by Scorpion Capital has caused another big problem for IonQ. The company is facing a securities fraud lawsuit.

Highlights of the Securities Fraud Lawsuit

The securities fraud lawsuit has summarized its allegations, citing “IonQ had not yet developed a 32-qubit quantum computer” and that the firm’s “11-quantum qubit computer suffered from significant error rates, rendering it useless.” It also states that “a significant portion of IonQ’s revenue was derived from improper round-tripping transactions with related parties.”

So far, things do not look good for IonQ. I am not a lawyer, but I am not excited at all about these accusations.

What about the fundamentals? Can they change the negative opinion formed from the above information?

IONQ Stock: Net Losses Remain

In its Q1 2022 financial results, IonQ reported revenue of $2 million and a net loss of $4.2 million. The company expects revenue between $2.3 and $2.5 million for Q2 2022.

We are talking about a company with a market capitalization of $1.03 billion. This company is unprofitable and is burning cash. It is too pricey with a current price-to-sales ratio (TTM) of 261.87.

The expectations for IonQ are for revenue growth of 407.11% in 2022, 78.37% in 2023, 178.44% in 2024, and 250.59% in 2025. I am not bullish at all as the earnings per share projections are for negative 34 cents in 2022, negative 50 cents in 2023, negative 61 cents in 2024, and negative 26 cents in 2025. Is it a good idea to wait until 2025 for an unprofitable company to become profitable? I don’t think so.

The revenue generated today is not meaningful and the firm is losing money. I see quantum computing as a bet that lacks sense based on financial results and on valuation. I will totally skip it.

On the date of publication, Stavros Georgiadis, CFA  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.

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