D-Wave Quantum Just Got $100 Million From the U.S. Government. It's Also Burning Through Roughly $37 Million a Quarter. With Its Stock Down 60% From the Peak, Is It a Bargain or a Trap?

Shares of D-Wave Quantum (NASDAQ:QBTS) have tumbled 60% from its 52-week high. As a bargain-hunting investor, I'm piqued by that. However, after further inspection, I think the quantum computing stock is more of a value trap than a bargain. It trades at a sky-high valuation even though it's burning through cash.

Here's why more value-conscious investors will want to avoid this quantum computing stock.

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The case for a bargain

Before I get into my bear case, I wanted to start by giving D-Wave bulls their due. The only dual-platform quantum computing company is about to hit an inflection point. Its first half bookings were up a staggering 1,120% year-over-year to $35.5 million. That suggests its revenue, which was flat at $3.1 million in the second quarter, should surge.

D-Wave also recently received backing from the U.S. Government, as the Department of Commerce finalized a definitive agreement for up to $100 million in funding. This financing will help accelerate R&D, including the development of its next-gen quantum computers.

The company's growth potential has Wall Street unabashedly bullish. Of the 17 analysts with ratings on the company, 15 rate it a "buy," one a "strong buy," and the remaining analyst a "hold." Their average 12-month price target is over $35 per share, more than double the current price.

My case for a trap

When I look at D-Wave, I see a company that generated only about $5.9 million in revenue in the first half of this year. While its stock price has tumbled 60% from the peak, it still has a market cap of more than $6.5 billion. As a result, it currently trades at about 500 times sales. Meanwhile, even after factoring in expected revenue growth, the company trades at over 150 times forward sales. That's certainly not a bargain. Most investors would view a price-to-sales ratio of more than 10 times as expensive for a fast-growing tech stock.

Meanwhile, D-Wave is vastly outspending its revenue to fund its operations and R&D. Its net loss totaled $66.4 million through the first half of this year. It has used $73.5 million in net cash to fund its operating activities through the first half of the year, resulting in a quarterly cash burn rate of around $37 million. While the company ended the quarter with over $546 million in cash and marketable securities and will receive up to an additional $100 million in funding from the U.S. Government, its high cash burn rate is a red flag for me. It will likely need to continue raising capital to fund its operations and growth, which would further dilute existing investors. Its shares outstanding have already more than doubled over the past three years.

Still not a compelling risk-reward for me

Even though D-Wave's shares are down 60% from their peak, I don't think the stock is a bargain at more than 150 times revenue. I still think there's downside risk, given its cash burn rate, which will likely lead to additional dilution. That's why I'd rather consider investing in a quantum computing ETF to gain exposure to this emerging opportunity and spread my risk around several top quantum stocks than buy D-Wave at its current valuation.

Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.