Dropping again below $30 per share after last month’s market sell-off, many may see now as the time to finally enter a position in Lucid Group (NASDAQ:LCID) stock.
After all, among the early stage EV plays, Lucid has long had the reputation that it would give Tesla (NASDAQ:TSLA) a run for its money.
Although still richly priced at just over $27 per share, its production ramp-up could result in the stock going on another incredible ride sometime in 2022. However, there may be a flaw to this thesis.
That would be the assumption that the market will continue to put this particular electric vehicle maker on a pedestal. As seen in a recent survey of institutional investors, Lucid is no longer the heavy favorite among the so-called “smart money.”
Instead, Rivian Automotive (NASDAQ:RIVN) now appears to have that status. The same thing may be playing out with retail investors as well.
Before, I’ve made the argument that the hope and hype surrounding Lucid may enable it to hold steady. Even as the market conditions that sparked “EV mania” disappear.
Now? I no longer see that playing out. As the market shifts to treating Lucid more like other EV plays, it may be difficult for it to make an outsized move higher.
LCID Stock and Fading Enthusiasm
As reported by Seeking Alpha on Feb. 3, investment bank Morgan Stanley (NYSE:MS) recently surveyed its clients to see which hot EV play they preferred, Lucid or Rivian. Respondents chose the latter by a wide margin (87%).
Personally, I don’t see the appeal of RIVN over LCID stock. Rivian, which is focused on the truck/van EV segment, appears to have been placed into the winner’s circle way too soon. Yes, a similar thing happened with Lucid in 2021. However, keep in mind that, unlike Rivian, Lucid hit many milestones in recent months.
Meanwhile, Rivian has had more hiccups in recent months, such as missing its 2021 production target.
My personal view notwithstanding, the so-called smart money’s preference for Rivian over Lucid is not good news for shares. With this, it may be up to the retail trading crowd to keep LCID stock at or above current prices.
Unfortunately, taking a look at what’s trending on Reddit’s r/WallStreetBets, chatter about Lucid has fallen considerably.
Decreased enthusiasm among investors (both Main Street and Wall Street) doesn’t necessarily mean another big dive is in store. However, the prospects of Lucid making a move back to $40, $50 or $60 per share may now be more limited.
Where are Lucid Shares Headed From Here?
In the months ahead, the market could increasingly treat LCID stock as no more special than other EV plays. That is, treat it more like Gores Guggenheim (NASDAQ:GGPI), which is taking Polestar public, or like Fisker (NYSE:FSR).
What does that mean? Instead of taking a molehill of positive news and making a mountain out of it, investors could instead adopt a more show-me mindset for Lucid. The market may not be as willing to bid it back up again until it actually hits its high production targets for 2022, 2023 and beyond.
Don’t take this to mean it’s the beginning of the end, though. If Lucid does deliver on its promises and successfully accomplish its next few milestones, shares could again move back in the right direction. However, its underlying performance alone may not dictate what direction it’s heading over the next year.
As the EV bubble has come and gone, we could see names in the sector continue to pull back, simply because investors are cycling into new hot areas. Rate hikes could also continue to have an impact.
So far in February, the market has started to act like rate hikes are priced in with the Federal Reserve keeping its options open. So, we may see more severe interest rate increases than expected today. As higher rates bring down growth stock valuations, Lucid could continue to decline in price.
The Bottom Line
In hindsight, there was too much hype surrounding Lucid Group in 2021. It may have many advantages over other contenders for the “Tesla killer” crown. Yet that alone doesn’t guarantee that it will live up to expectations. Those once extremely bullish on the stock may be steadily coming to this conclusion.
Right now, institutional and retail investors are dialing back their excitement for LCID stock. Keep this in mind before buying it in the hopes that it quickly bounces back to prior price levels.
On the date of publication, Thomas Niel 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.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
