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Lucid Stock Still Looks Like a Bargain Here as Its EV Production Ramps up in 2022

Lucid (NASDAQ:LCID) has declined quite a bit from its peak price of $55.52 on Nov. 16. LCID stock is now down slightly over 30% to $38.72 per share as…

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This article was originally published by Investor Place

Lucid (NASDAQ:LCID) has declined quite a bit from its peak price of $55.52 on Nov. 16. LCID stock is now down slightly over 30% to $38.72 per share as of Jan. 20.

A Lucid (LCID) Air displayed in its own vitrine in Madison Square Park in New York. Lucid Motors started trading on the NASDAQ exchange via a SPAC merger.Source: rblfmr / Shutterstock.com

But the good news is that LCID stock has risen since its special purpose acquisition corporation (SPAC) merger deal closed in July 2021. That is effectively when the luxury electric sedan maker went public on the NASDAQ through a reverse merger with the SPAC.

Now that the company is public it has a lot of cash on hand to help finance its electric vehicle (EV) production ramp. For example, Lucid had over $4.8 billion in cash at the third quarter’s end. It also raised an additional $1.75 billion in convertible senior notes on Dec. 9.

So, depending on how much cash it burned in the fourth quarter, the company could have about $6 billion in cash or slightly more at the end of 2021. Based on its cash burn rate forecast, there will be plenty of cash left for its production ramp up over the next two years.

Where Things Stand With Lucid

For example, Lucid expects to deliver 49,000 EVs in 2023, up from 20,000 in 2022, according to page 65 of its slide deck presentation. That will produce $2.219 billion in revenue in 2022 and $5.532 billion by the end of 2023.

Moreover, page 9 of Lucid’s earnings slide deck shows its cash burn rate was $1.044 billion in the last nine months. It’s probably higher than that now, as production has started to ramp up in Q4. In addition, Lucid’s chief financial officer has indicated that its capital expenditure (capex) spending will be much higher in 2022. In fact, it will “pull forward” $350 million of future capex spending in 2022.

As a result, the CFO said it will have enough cash to get through 2022. This is probably because the ramp-up process will eat up a lot of cash, although revenue will still not be profitable in 2022 and at least part of 2023.

Moreover, the company will likely have plenty of opportunities during 2022 to raise additional debt capital. This is what Tesla (NASDAQ:TSLA) did when it first ramped up its production five years ago. So analysts are probably not worried about the company’s ability to survive in the near term.

Where Analysts Stand on Lucid

Most analysts on Wall Street are positive about LCID stock. For example, a survey by Seeking Alpha of five analysts that cover the stock has an average price target is $42 per share. That is 8.5% over today’s price of $38.72 per share. However, two of these analysts have a strong buy and one has an upper target of $60 per share.

Moreover, the TipRanks survey of six analysts shows an average price target of $41.20, or 6.4% over today’s price. Moreover, Yahoo Finance, which uses the Refinitiv analyst data, has a survey of four analysts covering Lucid. The average price target is $42.75, or 10.4% over today’s price.

What To Do With LCID Stock

Lucid now has a market value of $64.55 billion at $38.72 per share for LCID stock, according to Seeking Alpha. This puts it on a forward price-to-sales (P/S) metric of 11.7 times 2023 sales.

However, given its forecast sales of about $14 billion in sales for 2025, its forward P/S sales metric is 4.61 times sales. On an adjusted basis, the 2025 revenue works out to $8 billion (using a 15% discount rate for four years). That puts it on an adjusted P/S metric of just 8.1 times revenue.

That is not that expensive, especially if you compare it to Tesla which trades at a much higher P/S metric.

Therefore, investors should consider taking a stake in LCID stock now, if they don’t already have a position. Moreover, for those that do have shares, they should probably average down and lower their cost. This is because LCID stock is cheap and will likely produce a good return over the long run.

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.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.

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Author: Mark R. Hake

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