Shares of Lucid Group (NASDAQ:LCID) have been revving up lately. The electric vehicle (EV) maker has seen its shares double in less than a month. The red-hot rally in LCID stock, however, is beginning to put on the brakes. Look for overvalued and overbought Lucid shares to struggle to head higher over the coming weeks.
Mark R. Hake, CFA, recently took a deep dive into Lucid. He felt future deliveries and revenues could actually exceed current expectations. Currently, the company expects 2023 deliveries to total approximately 49,000. Revenues for 2023 are expected to come in around $4.1 billion.
That would put the forward price-to-sales (P/S) multiple for 2023 at 17.7x according to Hake. His price target of $61.79 is based on a slightly higher multiple of 20x to 22x.
I think a 17.7x, not to mention 20x to 22x multiple, is extreme. I also like to value car companies in a different way: by their price per car. In this context, LCID stock is blowing an even bigger bubble.
Lucid expects to deliver 500,000 units per year by 2030. The market cap for LCID stock was $84 billion as of Nov. 23. This equates to a forward valuation in 2030 of $168,000 for each car sold. Even if this production number is doubled, the resulting $84,000 valuation per car is certainly eye-popping.
The Technical Take on LCID Stock
Lucid shares failed to break through major overhead resistance at $58. Its nine-day relative strength index (RSI) reached extremely overbought readings before weakening. Momentum has stalled and is beginning to soften.
Its moving average convergence divergence (MACD) also crested and is headed lower. The only other time all these indicators aligned in a similar fashion marked the all-time high in LCID stock.
I didn’t always have a bearish viewpoint for Lucid. I was decidedly bullish in my previous article on LCID stock from Oct. 29. At the time, I recommended a buy-write strategy with LCID trading around $26.38. That proved to be prescient and profitable. Lucid stock has basically doubled in price since that piece was published.
Now that LCID stock is up 100% in less than a month, my bullish tone has turned somewhat bearish. Price does matter.
How to Trade Lucid Now
Lucid’s implied volatility (IV) is actually higher now than it was in late October. IV currently sits at the 47th percentile. This makes option selling strategies very viable. A bearish call credit spread makes sense. It profits from a pullback or even just a period of further consolidation.
Sell LCID stock Jan. 7 $65 calls and buy Jan. 7 $70 calls for a $1.10 net credit. Maximum gain on the trade is $110 per spread. Maximum risk is $390 per spread. The return on risk is 28.2%, while the short $65 strike is well above the $58 resistance area. It is also above the $61.79 price target of Hake. The short $65 strike provides a 27% upside cushion to the current price of LCID stock.
The short call spread is also a natural hedge to those who followed my previous trade on Lucid stock and are long the LCID buy-write.
On the date of publication, Tim Biggam did not have (either directly or indirectly) any positions 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.
Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, 4 years as Lead Options Strategist at ThinkorSwim and 3 years as a Market Maker for First Options in Chicago. Tim has appeared on PBS and the Nightly Business report, while maintaining weekly appearance on Bloomberg TV and CBOE-TV to discuss everything from volatility to LEAPs. Tim has also been invited for reoccurring appearances on CNBC’s Volatility Playbook.