Lucid Group’s high valuation remains a problem despite bullish events
Lucid Group, Inc. (NASDAQ: LCID) the stock has been a strong performer in recent weeks, rising around 54% in a declining and increasingly cautious stock market. The main reasons for this strong performance appear to be a constructive September 16 announcement from the US Environmental Protection Agency (EPA) regarding the range of its flagship model Lucid Air, and a bullish research report by Bank of America Securities (BofA) published the same day.
First, the Dream Edition R, Dream Edition P, and Grand Touring models all achieved a range of around 500 miles, well above other electric vehicles (EVs), including Tesla’s Model S.
Second, the BofA report speculated that the Lucid Air Dream Edition will ultimately be seen as a “combination of Tesla and Ferrari”. In turn, the company assigned a price target of US $ 30 per share for the stock. (We note that earlier in the week an analyst at Morgan Stanley launched a Lucid hedge with a share price target of US $ 12.)
The difficulty in taking a bullish stance on Lucid is its giant valuation. Based on its own projections (which it has not updated for some time and which may be subject to reductions), Lucid will not turn into positive EBITDA or positive free cash flow until 2024 and 2025, respectively. . By 2025 and 2026, the company hopes to achieve gross margins of 22-23%.
By 2026, the company expects to generate US $ 2.9 billion in EBITDA and US $ 1.5 billion in free cash flow. So even based on Estimated EBITDA 2026, the current ratio of Lucid’s implied enterprise value to 2026E EBITDA is close to 12x, a high number for any growing business. Alphabet Inc. (NASDAQ: GOOG) trades at around 20x the enterprise value / EBITDA ratio based on Current EBITDA.
Lucid’s short interest is 44.14 million shares (as of August 31, 2021), a high absolute number that suggests the possibility of a stock-like short squeeze. However, the 44.14 million shares uncovered is only about 2.7% of the total outstanding shares of 1.62 billion, and only 2.6 times Lucid’s average daily trading volume. Several other start-up electric vehicle manufacturers have a larger proportional short-term interest, which in turn equates to a larger multiple of the average daily trading volume.
On the flip side, there are two short-term positives for Lucid. First, the time when insiders could sell their stocks on the open market are over, which in theory relieves some selling pressure on the stock. This window closed on September 1st. Second, Lucid plans to begin some customer deliveries of the Lucid Air Dream Edition (priced fully equipped at US $ 169,000) later this year.
Relative Performance of Lucid – White Hot Over the Past Three Weeks
Since September 1, Lucid stock has significantly outperformed typical VE stock and the overall market, increasing by around 54%. Lordstown Motors Corp. and Tesla, Inc. are roughly flat over this period, while Fisker Inc., Canoo Inc. and the S&P 500 are all down. In the figure below, the S&P 500 and each of the stock prices are presented as an index where 100 is the uniform starting point.
The EPA’s driving range estimates for Lucid’s flagship vehicle and the bullish BofA call for actions are clearly positive factors for the company. However, the Lucid title’s reaction to the news seems too aggressive, especially given the poor performance of other EV titles. Additionally, the assessment of Lucid’s enterprise value through 2026E continues to appear stretched.
Lucid Group, Inc. last traded at US $ 24.92 on the NASDAQ.
Information for this briefing was found through Sedar and the companies mentioned. The author has no title or affiliation related to this organization. Not a buy or sell recommendation. Always do additional research and consult a professional before purchasing a title. The author does not hold any license.