Lucid Has Lost Its Luster, But It’s Still Too Early to Buy

  • Lucid Group (LCID) has pulled back to under $20 per share.
  • While a recent deal has given LCID stock a slight boost, another move lower may be just around the corner.
  • As it remains likely for Lucid to make a trip back to $10 per share before bottoming out, even if you’re bullish, there’s no rush to buy.
Exterior of Lucid Motors (LCID) building

Source: gg5795 / Shutterstock.com

Hit hard by April’s growth stock selloff, Lucid Group (NASDAQ:LCID) is trying to bounce back. Late last month, there was a bit of news that helped give LCID stock a lift.

But it only provided a modest, temporary boost, so further positive developments are necessary to send shares in this early-stage electric vehicle (EV) maker back up to higher prices. The problem is that in the months ahead, there may be more negative developments than positive ones. Further disappointment could put additional pressure on the stock.

Not only that, but speculative growth plays are continuing to fall out of favor, which is creating challenges for LCID stock. In short, there’s still a strong chance this former special purpose acquisition company (SPAC) makes a return to its original price of $10 per share before it truly bottoms out. With this in mind, I wouldn’t run out and buy the dip.

LCID Lucid $19.55

The Latest With LCID Stock

As was the case with many growth plays, last month Lucid gave back its gains from the March relief rally. In April, rising interest rates put pressure on their high valuations. In addition, said rising rates have heightened concerns about an economic slowdown or even a recession.

Towards the end of the month, however, there was a development that helped LCID stock briefly get back on an upward trajectory. The automaker signed a deal to supply the government of Saudi Arabia with up to 100,000 of its vehicles. Again though, the boost from the deal was modest and didn’t last long.

This is no surprise, given this transaction doesn’t exactly change the game for Lucid. While it sounds like a big order, the Saudi Arabian government have not technically committed to buying 100,000 vehicles. They’ve committed to buying 50,000, with the option to buy another 50,000. Also, it’s a ten year deal, with most of the vehicles being delivered after 2025.

In other words, this deal doesn’t exactly point to an increased chance of the company still being on the path to tens of billions in annual sales by the mid-2020s.

Lucid’s Upcoming Earnings Report

While the buzz around the deal has waned, it has helped LCID stock find some support. Currently, shares are holding steady at just under $20 per share. Yet in a few days, the selloff of this aspiring Tesla (NASDAQ:TSLA) competitor could resume.

That’s because the company’s earnings report could elicit a negative response. Like last quarter, revenue could fall short of expectations. Even worse, Lucid may have to again walk back its production targets. Last quarter, management cut its target from 20,000 vehicles, to between 12,000 and 14,000 vehicles, citing “extraordinary supply chain and logistics challenges.”

Given these factors continue to impact the automotive industry, I wouldn’t discount the chances of further production bottlenecks. This may result in another double-digit drop, similar to its last post-earnings selloff.

But unlike the late February/early March selloff, which ended quickly thanks to the relief rally, the same thing might not happen here. As the Federal Reserve gets more aggressive in its mission to bring down inflation, unlike two months back, few are making the argument that rate hikes are fully priced in.

Even If You’re Bullish, Don’t Buy LCID Stock

It’s very possible the Fed’s future actions with interest rates are not yet priced into the market. Growth stocks like Lucid may have more room to fall from here. Add to this the prospect of this EV maker facing more production challenges.

Instead of a brief drop in price, we could instead see an extended post-earnings decline. My past prediction that it will drop back to its $10 per share SPAC offering price could still play out.

Despite its recent hiccups, I can understand why many are bullish it will live up to expectations — especially as there’s billions of dollars worth of demand already for its flagship Air vehicle.

Nevertheless, even if your confidence that it’s a “Tesla killer” in the making is unchanged, consider it too early to buy LCID stock. The opportunity to purchase shares at a more favorable entry point remains likely.

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, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


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