Lucid Group’s (NASDAQ:LCID) inventory is down about 9.5% in after-hours commerce. The decline follows the corporate’s announcement to lift $1.5 billion in capital by means of the issuance of inventory. The issuance of shares leads to dilution for shareholders and infrequently lowers the market worth. Nonetheless, buyers shouldn’t fear a lot, as it’s regular for an early-stage firm to lift capital from the sale of its inventory to fund future operations. What considerations us most is the EV maker’s lofty valuation.
Let’s dig deeper
Lucid Group is within the capital-intensive enterprise of producing vehicles and would require extra capital to ramp up its manufacturing. Additional, elevating capital by means of inventory gross sales is usually cheaper than debt.
Thus, in an SEC submitting, Lucid introduced that it plans to promote as much as $600 million in new shares below the fairness distribution settlement. Additional, its majority shareholder, Ayar Third Funding Firm (which owns about 60.4% stake within the firm), has agreed to buy as much as $915 of its inventory below the subscription settlement.
Whereas the inventory sale will influence the inventory worth, buyers shouldn’t be overly involved so long as the corporate is on observe to hit its manufacturing steering of 6-7K automobiles and is rising supply numbers.
Nevertheless, Lucid’s valuation is one space the place buyers ought to focus. LCID inventory is buying and selling at a price-to-sales a number of of 128.1, indicating that the inventory is extremely overvalued. Whereas increased adoption of EVs and Lucid’s strong expertise are positives, the valuation is manner too excessive and unjustifiable, particularly as the corporate is just not worthwhile and just lately diminished its manufacturing targets.
Is LCID a Purchase, Promote, or Maintain?
On TipRanks, LCID inventory is a Maintain based mostly on three Purchase, one Maintain, and two Promote suggestions. In the meantime, because of the 68% decline in its worth, LCID’s common worth goal of $18.80 implies 39.3% upside potential.
LCID inventory has a constructive sign from hedge fund managers who purchased 4.2M shares final quarter. Nevertheless, it scores a 5 out of 10 on TipRanks’ Sensible Rating system, implying a Impartial outlook.
Backside Line
Rising EV adoption, robust buyer demand, and better reservations will assist Lucid’s financials and inventory worth. But, its excessive valuation is a dampener and will restrict the upside potential.
