- Lucid is down 54% from its November high price, wiping over $40 billion off its cheery valuation in the process.
- Its recent fourth-quarter earnings release lowered the company’s electric vehicle (EV) production target dramatically for 2022 from manufacturing issues.
- Investors should be careful here and take a wait-and-see attitude, especially as LCID stock still has a very high valuation.
Lucid Group (NASDAQ:LCID) has fallen dramatically since peaking at $57.75 on Nov. 17. Now, though, LCID stock is down more than 50% from those levels and trades near $25.50 per share.
In short, investors are worried about the upstart luxury EV manufacturer and its production ramp during 2022. The bottom line is that its market value has taken a huge hit. And it could keep on falling if Lucid can’t get things back on track.
Lucid’s Difficult Outlook
On Feb. 28, Lucid reported that it delivered just 125 EVs in Q4 and 300 deliveries to date, and produced revenue of $26.4 million. That said, in September, the company indicated it was on track to make 577 luxury EVs for the year. Additionally, Barron’s wrote that Wall Street analysts were expecting 250 cars to be made in Q4. Thus, the results being well below forecasts was a major letdown.
Moreover, the company’s revised outlook for 2022 disappointed investors. Lucid said that its outlook for 2022 production is for a range of 12,000 to 14,000 vehicles. That is significantly lower than its original estimate in July 2021 of 20,000 EVs produced during 2022.
That is a slashing of 30% to 40% from its original expectations presented to investors prior to the initial public offering (IPO) in late July 2021. The company said that its lower expectations were due to “extraordinary supply chain and logistics challenges.”
Furthermore, CNBC reported that this has to do with the commodities that go into its trim, including glass quality; Not the semiconductor chip shortage. Peter Rawlinson, CEO of Lucid Motors, told CNBC it wants to make sure that its EVs have the absolute highest quality.
Analysts have not given the stock much leeway as a result. The average price target for five analysts prior to the results was more than $40 per share. Now, it has dropped to $34.75, and it looks to be still falling.
Additionally, these analysts now project just $1.31 billion in revenue for 2022. And given its market cap of nearly $42 billion, LCID stock trades for a very high price-sales (P/S) multiple of more than 31 times.
Where This Leaves Investors In LCID Stock
Overall, LCID stock’s high valuation metrics could be vulnerable to another leg down if Q1 results disappoint investors as they did in Q4. For example, analysts forecast just $53.4 million in Q1 revenue, implying that the bulk of the $1.31 billion in sales for 2022 will occur in the second half. If sales come in lower than this, there could be a huge levered effect on expectations for Q2.
With this in mind, a host of additional headwinds could be buffeting its production efficiency and EV consumer demand. For example, inflation pressures could force the company to raise prices as Tesla (NASDAQ:TSLA) has been doing recently.
In addition, concerns about economic growth in the second half due to increasing Federal Reserve interest rate hikes could lead to a lower number of reservations and customer orders. And lastly, the jury is still out on whether the company can profitably scale up a large EV manufacturing operation.
Bottom Line on LCID Stock
As a result, investors might want to take a “wait-and-see” attitude about the valuation of LCID stock. The best approach is probably to purchase more shares on days when the stock hits new lows. This will allow existing investors to average down their costs.
The risk here is that at 31 times 2022 sales, it could still be significantly too high. There could be another huge disappointment waiting in the wings. And with no margin of safety here in the valuation, most value investors will likely stay away from LCID stock.
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.