The Global X Lithium & Battery Tech ETF (NYSEARCA:LIT), one of the most liquid benchmarks of the electric vehicle (EV) market, declined over 10% year-to-date to just above $75 per share, but it still surged 15% on a year-on-year basis. Lucid Group (NASDAQ:LCID), a young and innovative EV company, lost 32% since the beginning of the year to around $26 per share. LCID stock has underperformed most of its peers over the period, after speculative buying sent the stock to a ridiculously high market capitalization of more than $90 billion last November.
In this context, the sharp correction of the stock since January might provide an opportunity for investors looking to enter an EV technological leader.
Let’s dive into Lucid’s growth prospects, fundamentals and valuation metrics to determine if it is worth buying.
High Investor Interest for Premium EV Company
Lucid Group is seen as the main competitor of Tesla (NASDAQ:TSLA), one of the leading EV manufacturers.
Lucid has invested massively in the past years and its technological and engineering efforts have enabled it to develop one of the most advanced EV cars, the Lucid Air Dream Edition. With 1,111 horsepower and an estimated range of 520 miles, Lucid Air offers a range of 100 miles above its peers. Lucid’s high-end car is set to compete with traditional automakers and with its main competitor, Tesla.
After LCID combined with Churchill Capital IV, a special purpose acquisition company (SPAC), last July, Lucid raised $4.4 billion. In December 2021, Lucid raised further capital with a senior debt offering of $1.75 billion due in 2026 and exercised a 15% overallotment option bringing total gross proceeds to $2.01 billion. These proceeds were “one of the largest green convertible offerings in market history,” according to Sherry House, CFO of Lucid Group. That reveals significant investor interest in LCID’s equity story.
With this successful capital raise, Lucid has considerably strengthened its balance sheet and has secured operations for at least the next two years.
On the production side, Lucid is currently ramping up EV output. The company only started electric car production in September 2021 and began deliveries last October. Yet, while Peter Rawlinson, Lucid CEO, was confident in 2021 on the ability to achieve 20,000 electric vehicles in 2022, there was no update on that figure in the Q3 2021 report. This cautiousness might indicate growing difficulties to increase production — not surprising in a young business.
The company will report the fourth-quarter and the fiscal year 2021 financial results on Feb. 28, 2022. Investors hope to get an update on its production guidance.
A Solid Growth Story and Strong Balance Sheet
Lucid Group’s sales have increased consistently last year. The company’s net sales are expected to expand to $62 million in 2021 from zero in 2020. Going forward, the consensus estimates net sales to continue to surge by 226.3% to $2 billion in 2022 and by 128.3% to $4.58 billion in 2023.
On the other side, LCID’s bottom line is in poor shape. The company has posted in the past two years substantial losses the past two years, and this is not expected to end anytime soon. Lucid registered a net loss of $2.61 billion last year. The consensus sees a slight improvement of the company’s bottom line in the next two years, with a net loss of $1.84 billion in 2022, which should decelerate to $1.53 billion in 2023.
Despite that, the company had a healthy cash position at the end of August 2021 of $4.79 billion. Yet, the massive amount of cash the company is employing to fuel its development, will not suffice to maintain a healthy balance sheet in the long term. Analysts are expecting LCID’s cash position to decline by 38.9% to $2.42 billion in 2022 and by 59% to $993 million in 2023.
LCID Stock Is Overvalued Compared to Other Industries
With that being said and even if the company lost more than 30% of its market capitalization since the beginning of the year, LCID stock remains expansive in terms of valuation metrics, compared to other industries. With an estimated 2022 price-book ratio of 8.54x and an EV/revenue of 19.5x.
Nevertheless, Tesla has much higher valuation metrics, with a 2022 P/B ratio of 20.4x and EV/revenue of 9.88x.
On the other hand, the Chinese premium EV manufacturer, NIO (NYSE:NIO), which has a similar market capitalization to LCID’s, trades currently at 2022e P/B ratio of 9.01x and at EV/revenue of 2.92x.
While conservative investors might find Lucid equity overvalued, I believe that it could go much higher from here. I am bullish on LCID stock and I believe that this young and technologically advanced EV company will rival equally with major EV peers.
On the date of publication, Cristian Docan did not have (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.
Cristian Docan, a contributor for InvestorPlace.com, has been writing stock market-related articles for Seeking Alpha, Stocknews, and Wealthpop since 2017. He takes a fundamental and technical approach in evaluating stocks for readers, focusing on momentum investing and macro-driven strategies.