Last month, Lucid Group (NASDAQ:LCID) stock reached a new milestone, but investors are not celebrating, given that LCID continues its steady slide. This one-time “too hot to touch” EV play has dropped below $5 per share, putting it into “penny stock territory.”
Sure, with the stock now down to mid single-digit prices, contrarians may eye the opportunity to buy a high-profile EV startup on the cheap. However, while LCID now trades at a mere fraction of its past all-time high (over $60 per share), don’t assume that it’s undervalued.
In fact, based on fundamentals and prospects, shares could be overvalued at current levels. Not only that, with the company reporting quarterly results within a few days, shares may be on the verge of experiencing another sharp price decline. Here’s why.
The Next Big Event for LCID Stock
On Nov. 7, Lucid Group will report its quarterly results for the period ending Sep. 30, 2023. As the EV maker released its delivery numbers for the preceding quarter back on Oct. 17, some may argue that the latest fiscal results are priced in.
Disclosing that the company delivered just 1,457 vehicles during Q3 2023, a scant increase compared to deliveries during Q2 2023 (1,404 vehicles), this horrendous deliveries report was what knocked LCID stock down below the $5 per share penny stock ceiling.
However, while investors are already bracing for impact, don’t assume shares will rally post-earnings, upon news of “less bad” results.
Just because Lucid has already disclosed lackluster sales for last quarter, doesn’t mean revenue and earnings will meet/beat the sell-side’s walked-back expectations. During Q2, for example, revenue fell slightly short of estimates, and the company reported higher-than-expected losses.
Irrespective of whether investors have fully digested Lucid’s latest results, updates to guidance may elicit a negative reaction. For example, a downward revision to its 2023 production guidance (10,000 vehicles), or any news related to cash burn/capital raising needs.
No End in Sight With Lucid’s Two Key Problems
Sure, in the coming days, my pre-earnings forecast for LCID stock could prove incorrect. The company may end up disclosing some “less bad” or unexpectedly-positive developments in the earnings release. Still, while such a turn of events may give a boost to shares after earnings, said boost may prove temporary.
Positive news that may be revealed in the release may not be enough to counter this company’s long-standing issues. A good example is with Lucid’s demand problem.
As InvestorPlace’s Josh Enomoto recently argued, even with a recently introduced referral program, Tesla’s (NASDAQ:TSLA) aggressive price cutting, plus a near-term waning of demand for EVs due to high interest rates, point to more disappointing sales results ahead.
That’s not all. As sales challenges persist, presumably so too will Lucid’s cash burn problem. Lucid raised $3 billion earlier this year. This may be sufficient to sustain stateside losses, while funding the build-out of its Saudi Arabian production infrastructure.
Then again, maybe not. $3 billion is a big chunk of change, but Lucid is burning through around $700 million per quarter. A few quarters from now, the company may need to have another dilutive fundraising round.
Bottom Line: Sell/Avoid This Stock
Lucid has yet to experience a “game over” or near “game over” moment like some of the other “also ran” EV plays, but it continues to move in that bleak direction.
The current market environment is very unfavorable to LCID. High interest rates are making it even more difficult for this company to scale up production/sales to the level of profitability.
At the same time, as the market keeps shunning shares in unprofitable companies with high growth potential, Lucid’s valuation ($10.36 billion), still backed primarily by hope and hype, appears to have more room to contract from here.
If Lucid sinks deeper into “penny stock” territory, risk/reward could become favorable, but shares have a ways to go from here. Hence, a pending penny plunge means your best move is to sell/avoid this LCID stock.
LCID stock earns a D rating in Portfolio Grader.
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.