Time and time again, additional reasons emerge to dissuade financial traders from investing in electric vehicle manufacturer Lucid Group (NASDAQ:LCID). If you were thinking about buying LCID stock now, you should probably reconsider.
There’s a recent disclosure from Lucid Group indicating that the automaker is willing to do almost anything to raise money at this point.
Granted, it would be difficult to cite 439 million separate reasons not to invest in Lucid Group stock. However, there’s at least one big reason that should prevent any prospective Lucid Group shareholder from making a hasty decision.
LCID Stock Starts June With a ‘Thud’
Sometimes, the market can be irrational and there may be opportunities when that happens. Other times, however, the market reacts appropriately to bad news.
Lucid Group might try to spin this as good news, but let’s delve into the details and you can form your own conclusion. On May 31, Lucid Group announced a “a public offering of 173,544,948 shares of its common stock.”
Ayar Third Investment Company, a subsidiary of Saudi Arabia’s Public Investment Fund, “has agreed to purchase from Lucid 265,693,703 shares of Lucid common stock in a private placement.”
So, as Eddie Pan succinctly summed it up, the company is getting ready to sell approximately 439.23 million shares of Lucid stock.
The next day, June 1, LCID stock tumbled around 15%.
Is this a buying opportunity for bottom-fishers? Not likely, as Lucid Group wasn’t very clear about how it will deploy the raised capital. All we know is that the automaker plans to use the funds “for general corporate purposes, which may include, among other things, capital expenditures and working capital.”
Lucid Group’s Capital Raise Feels Desperate
The company’s vagueness about how it will deploy the capital is just one concern. Pan succinctly summed up another concern: Lucid Group’s “issuance and sale of common stock will dilute existing shareholders.”
It’s really an issue of trust. If you buy LCID stock today, how can you know for certain that Lucid Group won’t pull a similar share-dilutive move in the future?
This development suggests that Lucid Group may be desperate to raise money. That’s not an unreasonable concern, as Lucid Group reported a declining position of cash, cash equivalents and restricted cash in 2023’s first quarter.
Lucid Group revealed a widening net earnings loss for that quarter.
Along with all of that, cautious investors should wonder whether it’s a good thing for a single entity, the Saudi PIF, to have so much power and control over Lucid Group. It’s just another consideration for Lucid’s shareholders to worry about, in case there weren’t enough problems already.
The Reasons Not to Buy Lucid Stock Are Adding Up
Maybe you’re eager to get exposure to the EV industry. That’s fine, but Lucid Group clearly has financial issues. Don’t assume that a huge capital raise will immediately solve those problems.
Besides, there’s a trust issue to consider as Lucid Group is diluting its loyal shareholders now. Will Lucid Group do this again if it needs fresh capital later this year or next year? You just never know. Therefore, it’s wise to steer clear of LCID stock.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.