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Lucid Is Undervalued as It Ramps Up Vehicle Production

InvestorPlace - Stock Market News, Stock Advice & Trading Tips LCID stock is worth almost 20% more, but a lot depends on its upcoming earnings and delivery forecast and any...

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This story originally appeared on InvestorPlace

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

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Lucid Group (NASDAQ:LCID) is moving higher day by day as its production of electric vehicles (EVs) out of its Casa Grande, AZ plant ramps up. This is just as I predicted in my last two articles, including one published Oct. 4 in which I argued LCID stock is worth $42.87 per share.

A photo of the Lucid Motors Air EV from 2018.
Source: ggTravelDiary / Shutterstock.com

There’s no denying Lucid stock is on the move. Since Sept. 1, when LCID stock seemed to have reached a recent trough of $17.79, it was up 102% to $35.96 as of mid-day Nov. 1.

Moreover, in the last month since Oct. 1, when the stock closed at $24.61, the shares are up 46%. Given my price target of $42.87, LCID stock still has 19.2% more it can move.

Where Things Stand With Lucid Group

The next major news event for Lucid will be its upcoming Q3 earnings presentation on Nov. 15. No one expects the company to report any revenue. However, its ongoing commentary and expense reports, as well as its cash flow, will be of great interest.

Additionally, it will be important to see how well the company is on track to meet its production targets. For example, according to page 65 of its latest presentation, Lucid expects to deliver 20,000 EVs by the end of 2022.

So, theoretically, analysts would like to see that the company is on track to deliver several thousand EVs, at least on a run-rate basis, by the end of December. It will be interesting to see how much color the company can give to this timeline and production estimate.

What Analysts Say About LCID Stock

According to a Seeking Alpha contributor, analysts will be reviewing Lucid’s role in an “increasingly competitive landscape.”

Seeking Alpha reports that three analysts now cover the stock. Their average revenue forecast for 2021 is $76.14 million, and for 2022 it’s $1.74 billion.

Lucid Group now has a market capitalization of $59.87 billion. So this puts LCID stock on a forward 2022 price-to-sales (P/S) multiple of 34.4x. However, given that these same analysts predict $4.1 billion in sales for 2023, the 2023 P/S multiple is just 14.6x.

Granted, this is much higher than the Tesla (NASDAQ:TSLA) 2023 multiple of 12.5 times. For example, Tesla has a market value of $1.12 trillion according to Seeking Alpha. But analysts forecast revenue of $89.5 billion by 2023. That gives it a 12.5 P/S multiple.

LCID stock has a slightly higher P/S multiple of 14.6 times compared to Tesla, but that stands to reason because Lucid’s revenue is at a much smaller base. In addition, its revenue growth rate is forecast to be much faster than Tesla over the next several years. This is purely due to the law of large numbers.

In fact, I would not be surprised to see LCID move significantly higher if analysts believe its production and delivery ramp is too conservative. A lot of that assessment will depend on management’s commentary over the next two quarters, starting with its Nov. 15 release.

What to Do With LCID Stock

I suspect many more analysts will begin following LCID stock once it produces its first earnings release on Nov. 15. This is because they want to set their marker down on another stock with potential to skyrocket, just like Tesla.

On the other hand, the truth is that Lucid is not going to be cash-flow positive — or even operating-profit positive — for a good while. This could deter many analysts until they can predict future profits.

As it stands, analysts that already cover the stock don’t forecast net income profits until some time after 2023. That is probably why, for the time being, they have price targets below the present price.

For example, Yahoo! Finance lists three analysts’ average price as $23.33 per share. That is well below the LCID stock price today. However, I would not be too concerned about this.

Most investors will look carefully at the company’s Q3 earnings statement to see if it appears to be on track with its own delivery and revenue projections. If so, my price target of $42.87 per share, or 19% above today’s price, seems to be the best forecast for now.

On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) 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.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.

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