LCID Stock Will Take Longer to Grow Into Its Valuation Than You Think

Lucid Group (NASDAQ:LCID) stock was worth 30% more than Ford Motor (NYSE:F) a few months ago. Now it’s worth 30% less.

That doesn’t mean it’s a bargain.

Lucid hopes for revenues of $2 billion in 2022. It won’t be profitable. Ford expects revenue of $146 billion this year and $2 per share in profit.

LCID stock has had a moment because it’s a “greenfield” electric play, with no gasoline engine legacy. Its Lucid Air sedan is getting great reviews. It also has Saudi financial backing and has promised to build a factory in the Kingdom within five years, but there’s a limit to what even something like that is worth.

A Closer Look at LCID Stock

Ford stock has outperformed even that of Tesla (NASDAQ:TSLA) over the last six months because it can get into the electric game with cash rather than stock.

While Ford has $111 billion in debt, most of that is financing the purchase of new cars. The debt load excluding that was $23 billion at the end of September. At that time, it had $27.4 billion in cash and notes. That means it could fund its $4.4 billion in capital spending during the third quarter without watering down the stock.

Lucid is simply a much smaller company. After coming public in July, it had about $5 billion in cash at the end of September. It has barely begun to invest, listing under $300 million for purchases of property, equipment and software during the first nine months of the year.

Lucid is still undergoing birth pains, including an SEC investigation into its public offering through a SPAC called Churchill Capital IV.  The announcement of the investigation in December helped send LCID stock down.

Lucid Prospects

Lucid is still new enough to fall hard on a single analyst report, as when Redburn analyst Charles Coldicott gave it a neutral rating last week. His price target is $39/share, which is below its January 17 price of $42. The argument is that Lucid is competing directly with Tesla, which has already scaled its production on three continents. 

The argument I’ve made is more long term, aimed at mature investors rather than young speculators. That is, the company is aiming at a market for upper-end sedans that will be saturated in a few years, meaning future profits can’t be guaranteed.

Analysts are starting to buy that argument. At Tipranks, six LCID stock analysts are now deeply split. One is screaming sell with a price target of $13, while two are saying buy with a price target of $60.

The relative value of the two Tesla wannabes, when compared with the company they’re chasing, should also be considered.

After Tesla beat its production targets for 2021, the company’s market cap rose 15%, more than the value of Lucid and Rivian (NASDAQ:RIVN), which is targeting the pick-up market, combined.

The Bottom Line

I don’t doubt that Lucid can make 10,000 cars this year at a profit. I doubt whether that’s worth $69 billion, which implies it can continue to successfully scale for years to come.

At this level, any negative news, even minor fit and finish issues, could have a huge effect on your investment. Negative news, in this case, would include a successful roll-out of electrics from Ford, General Motors (NYSE:GM), or even a Chinese start-up like Nio (NYSE:NIO).

LCID stock has already reached a peak of speculative fervor. From here on in, it must deliver meaningful revenue, then operating profits, and eventually real profits. The hard work has only just begun.

On the date of publication, Dana Blankenhorn held no positions in any company mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.

Source link

Share with your friends!

Products You May Like

Leave a Reply

Your email address will not be published. Required fields are marked *

Get the latest stocks updates
straight to your inbox

Subscribe to our mailing list and get interesting stuff and updates to your email inbox.