Lucid (NASDAQ:LCID) stock has come off of its highs and it is starting to look like a bargain. In fact, at one point last month, the stock was valued even higher than the market cap for Ford Motor (NYSE:F). As I wrote in my last article, Lucid’s valuation was at $90 billion and Ford’s was at $79 billion, with General Motors (NYSE:GM) at $91 billion.
Now things are reversed to a more normal expectation. Lucid has a market value of $65.87 billion, Ford is still at $79 billion, and GM stock has dropped to $80 billion.
Keep in mind that Lucid is an all-electric original equipment manufacturer with just one model. Ford and GM each have one or two electric vehicle (EV) models with huge legacy internal combustion engine (ICE) model plants and costs.
By contrast, Tesla (NASDAQ:TSLA) has a market value of $909.8 billion and counting at around $902 per share. It was at a peak of $1,229.91 earlier on Nov. 4 and had a market cap of well over $1 trillion. In effect, it has left the two ICE legacy car makers — Ford and GM — in the dust. Even Lucid is basically slightly below par with these two ICE companies, nipping at their heels, so to speak.
So at $38.31, LCID stock is now down from its peak of $55.52 on Nov. 16. That represents a drop of $17.21, or a 31% drop in just one month or so. This puts it at a very good entry point for many investors.
Where This Leaves Lucid
The company recently reported that its customer reservations have risen to over 17,000 as of Nov. 15. In Oct. 2021, it began EV production for the Dream Air luxury model in Casa Grande, Arizona.
Moreover, after going public in July, Lucid had over $4.8 billion in cash on hand at the end of September. Since then, it closed on another financing round on Dec. 10 by raising $1.75 billion in convertible senior notes. This debt financing comes with a low 1.25% coupon rate, so the interest costs won’t be too severe. Depending on how much cash it burns through this quarter, this will substantially increase its cash pile.
For example, page 9 of Lucid’s earnings slide deck shows it burnt through around $1.044 billion over the past nine months. Given that production has just started, it’s likely that cash burn is still quite high at this point.
In fact, Lucid’s July 2021 investor presentation (page 65) shows that it plans to deliver 20,000 EVs during 2022. It expects to deliver 49,000 EVs by 2023.
During a conference call, Chief Financial Officer (CFO) Sherry House said that capital expenditure (capex) spending will rise dramatically next year. It is going to pull forward $350 million of future capex spending to 2022. Although she said that its cash would get it through 2022, apparently she wanted to make sure of that by raising more.
This is a sound thing to do as it is always better to raise cash when you don’t need to, rather than wait until it is clear that you have to do so. Moreover, Lucid plans on expanding its production capacity and this extra cash may allow it to do so.
Where This Leaves LCID Stock
Analysts are still very positive on LCID stock. Right now the average of 38 analysts surveyed by Seeking Alpha is $38 per share. This is around today’s price of $38.31. However, the high end is $60 per share.
Additionally, TipRanks.com reports that 3 analysts have an average price target of $44.33 per share. That represents a 10%-plus potential upside for investors in LCID stock.
This implies that there is still a good upside left for investors in LCID stock. My original target price target was $42.87 per share and the stock rose well over that. Now it is within a distance of obtaining that again.
On the date of publication, Mark Hake did not hold (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.
Mark Hake writes about personal finance at mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.
