Lucid Group (NASDAQ:LCID) stock has fallen to an all-time low, under $3. Being many times below its IPO price and being almost 95% below its all-time highs, early investors have been brutally hurt.
Though I love hunting down fallen stocks to capitalize on their value, LCID stock is still ridiculously overvalued even at its current price.
Trouble with LCID Stock
First, it’s important to understand that Lucid is a company that has real risks of going under completely. Profit margins have continued to fall as Tesla pushes more aggressively with cost-cutting. Right now, Lucid loses a whopping $227,000 per car production, meanwhile, Tesla makes $8,431 per vehicle production.
Most of the time, investors are happy pouring in money, even if the overall business isn’t profitable because the company is at least making money after every sale. For Lucid, the cost of goods sold is almost three times the revenue. This means that the fundamental business model is inherently flawed.
In addition, the company has an annual cash burn of $3.6 billion with only $4.4 billion left in ST and cash.
Valuation is a Problem for LCID
Lucid struggles to make over 10,000 vehicles per quarter while Tesla makes over a million vehicles per quarter and PROFITABLY. However, looking at the price-to-sales ratio, we find Lucid trading at 8.36x while Tesla trades lower at 7.94x.
With many predicting the complete collapse of Lucid, its stock still trades at a premium over its biggest competitor.
The PIF Fund
One reason that investors feel so safe with LCID stock is that the Saudi Arabia sovereign fund named the “Public Investment Fund” has a 60% stake in the company, and has continued to inject it with cash to keep the company afloat, such as the $3 billion stock offering last summer.
For the Saudi government, Lucid is a means for the country to transition into clean energy. It plans to open a Lucid factory in Jeddah and buy over 100,000 Lucid vehicles in the next decade.
At best, I feel that it’s simply too risky to rely on the Saudi government for Lucid’s growth. It simply has too little market share, with little demand, lacking infrastructure, and no ability to mass produce.
With the EV market already being so competitive, Lucid is not doing enough to differentiate itself, which has been reflected in its financial statements. Even if the PIF fund will keep the company afloat, that its valuation is higher than Tesla’s shows that the stock certainly hasn’t gone down enough to justify having value.
It’s important to remember that Lucid is not a Saudi state-run company. The fund is already looking to make its electrical vehicle. If no innovations come from Lucid or it doesn’t improve its business model, the fund would likely rewrite it as a loss and Lucid will be history.
My LCID Stock Verdict
Investors are massively overvaluing Lucid because of the perceived safety of the Saudi government ownership. However, right now there is no evidence to suggest the company can overtake market share soon and the underlying business model is in absolute shambles.
It is valued higher than Tesla, making it a bad investment even after considering its poor fundamentals.
On the date of publication, Michael Que 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.
The researchers contributing to this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
