Lucid (NASDAQ: LCID) stock exploded after the company was made public via a SPAC (special purpose acquisition company) earlier this year. But the share price has crashed by over 25% in December alone. I want to revisit the investment case here now that the company’s market value has fallen by so much.
Is Lucid stock now a buy for my portfolio? I still don’t think so, and here’s why.
EV boom: Lucid’s investment case
Before I get to Lucid itself, I recognise how exciting the electric vehicle (EV) market is today. Indeed, sales have surged in 2021, and I expect this to grow further from here.
There are going to be many opportunities for investors to benefit from this sector. Lucid may well be a good way to gain exposure to the growth in EV numbers. It’s not the only way, though. I wrote about a ‘picks and shovels’ approach to the EV market here.
Lucid released its third-quarter results ending 30 September last month, and there were some positive signs. Firstly, customer reservations for its EVs rose to 13,000 in the quarter, which represents sales of approximately $1.3bn. Reservations increased further to over 17,000 by the time the results were announced, which would mean sales reaching $1.7bn.
The company also said vehicle production started in the third quarter. This is vital if Lucid is to meet customer demand for the 17,000 EVs that have already been reserved.
Why I’m still not buying Lucid stock, yet
The results release wasn’t all positive. For one, revenue was only $232,000 and missed analysts’ expectations of $1.3m. The loss was also 43 cents per share, and investing in any loss-making company is always higher-risk, in my view.
However, I’m not so concerned about the financial results as it stands. It’s well understood that Lucid’s investment case is all about the potential for its EVs in the (hopefully) near future. Therefore, it wasn’t likely to generate significant revenue in this quarter.
One reason I’m not buying Lucid stock today though is its high valuation. If it generates the expected $1.7bn of revenue next year, the share price today is valued on a price-to-sales ratio of 39. I think this is a sky-high valuation. Lucid is going to have to execute flawlessly to make those sales, and there’s no guarantee it will.
The next reason is the announcement that Lucid is being investigated by US regulators over its forecasts it made when it listed via the SPAC. At this stage, it’s difficult to know if this will amount to anything. But at the very least, it makes a potential investor like myself question the validity of forecasts in the quarterly earnings releases. Until I know if the US regulator is satisfied with Lucid’s projections, I’m staying away.
So, for now, I’m going to keep Lucid stock on my watchlist. There could be huge potential here, but I feel there are better shares to buy today.
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Dan Appleby has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.