Now that Lucid Motors (NASDAQ:LCID) is public following its SPAC (special purpose acquisition corporation) reverse merger with Churchill Capital IV, shares look pretty cheap. LCID stock is now trading for $24.59 as of July 28. But it is worth much more.
This is based on its very clear projections on Lucid’s website where its May slide deck lays out its financial forecast. My view is that if the company can provide enough evidence that it is on track then LCID is at least 69% undervalued. And probably much more. Let’s look at this more carefully.
Lucid’s Projections and Its Present Value
Page 69 of the slide deck shows that at the close of the merger there were approximately 1.6035 billion shares outstanding. Now, in reality there may be more or fewer shares by the time the company reports its earnings for Q2. But for the sake of simplicity, at today’s price of $24.59, LCID stock has a presumed market value of $39.43 billion.
Now let’s compare that valuation to its projected sales. On page 64 of the deck, Lucid projects that by 2026 it will have $22.756 billion in sales. That means that effectively four and half years in the future it trades for 1.733 times its future sales.
But this is not where we leave it. We have to bring the future sales back to their present value using a discount rate. that rate effectively indicates the opportunity cost of any money that would be invested in alternative uses. For example, over the long run, the market makes about 10% on average, so I will use a 10% discount rate.
It turns out that an investment making 10% over 4.5 years would make 53.556% over that time. If we take the inverse of that number it tells us what we would need to invest now to end up with our original principal. The inverse, or 1/(1.53556), is 0.651228. For example, assuming we wanted to end up with $10,000, how much would we have to invest now at 10% per annum for 4.5 years? The answer is $6,512.28, or 65.1228% of $10,000. Therefore, the discount rate is 65.12%.
So if we multiply $22.756 billion in sales forecast 4.5 years from now by 65.1228%, their present value is $14.819 billion. As a result, this means that LCID stock trades at a present value P/S multiple of 2.66 times.
What Lucid Stock Is Worth
By comparison TSLA stock trades for over 12 times 2021 forecast sales and 9.2 times 2022 forecast sales, according to Seeking Alpha’s survey of analysts. Let’s call it 10 times on average.
This implies that LCID stock is still very undervalued. However, consider this. Tesla is already selling cars, but Lucid has yet to make one sale. The company recently said that it has 11,000 orders for its electric vehicle models, which cost around $169K. So, it makes sense that we should give it some sort of additional discount or bargain element.
So how about this: we’ll cut the appropriate comp P/S metric to 5 times instead of 10 times. Since LCID stock trades for 2.66 times P/S, that implies it still has an upside of 88%. In other words, being very conservative, LCID stock is still worth $46.22 per share (i.e., 1.8796 x $24.59 price today).
What To Do With LCID Stock
LCID stock could be worth nearly 90% more than its price today. However, keep in mind that this is completely dependent on the company producing $22.7 billion in sales by 2026. By comparison, Tesla is forecast to make about $50 billion in sales this year.
So Lucid has to get to over half of where Tesla is within four years. That means that Lucid’s electric cars have to be popular and people have to be willing to pay a premium price for them. In other words, the company has to perform.
Nevertheless, it still looks like LCID stock is a bargain and could be worth $46.22 sometime in the next year.
On the date of publication, Mark R. Hake did not hold any position in any of the securities mentioned in the 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.