Warning: This Skyrocketing Stock Has a Hidden Risk

It's hard to ignore the long list of quantum computing stocks that have been on a tear over the past few years. One company that's benefited from all of the quantum computing hype -- because a lot of it is hype -- is D-Wave Quantum (NYSE: QBTS).

D-Wave's returns of 1,600% over the past three years are hard to ignore. But I think the recent gains are masking a significant risk for investors. Here's why.

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Significant quantum computing sales are years away

When a company's share price is rocketing so high and so fast, some investors don't want to look at the hard truths about the company or the market it's competing in. In this case, the risk many people are ignoring is the fact that D-Wave generates hardly any revenue, and it could be years before quantum computing companies see any meaningful sales.

D-Wave recently reported its third-quarter results, and the company had just $3.7 million in sales. That's obviously a very small amount, but it looks even worse when we put it into the context of D-Wave's net loss of $140 million under generally accepted accounting principles (GAAP). This means that the gap between D-Wave's revenue and losses is very significant, and it could be years before it comes close to closing it.

While there are plenty of optimistic investors who believe that quantum computing sales will catch up with spending soon, I'm not so sure. Even big tech players like Alphabet -- which has developed its own quantum computing processor and made breakthroughs in quantum algorithms -- believe that significant commercial sales are still five to 10 years away. And management at Rigetti Computing has said that the company won't have commercial sales for three to five years.

Making matters worse for D-Wave -- and its shareholders -- is the fact that quantum computing requires significant investments in technology and research that don't come cheap. The result of this pushed D-Wave's operating expenses up 40% in the third quarter to $30.4 million. While the company does have $836 million in cash reserves to continue funding research and keep the lights on, the ramp-up in spending means that this pile of cash may not be as large as it seems right now.

D-Wave's expensive stock doesn't help, either

D-Wave's costs are rising quickly, it has significant losses, it has minimal sales, and the quantum computing market likely still has several more years to go before significant commercial sales materialize.

All this should be enough for investors to realize that D-Wave's stock is very risky. But if you need a little more convincing, consider that its massive share price returns mean that its stock now has a price-to-sales (P/S) ratio of 280 -- compared to the tech sector's average P/S ratio of just 9. That's risky indeed.

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.