Lucid Group (NASDAQ:LCID) should get a good boost in the fourth quarter, now that it has announced it’s producing and delivering electric vehicles (EVs). In other words, the factory is built, the line is ramped and Lucid Air EVs are coming out of Casa Grande, Arizona on schedule so far. This should act as a boon for LCID stock, especially since it’s so undervalued.
Source: ggTravelDiary / Shutterstock.com
Last month, I wrote that this stock is worth at least $43.57, based on its own growth projections. Since LCID stock closed at $24.61 on Oct. 1, this means it could rise at least 77%.
So far, since writing that article on Aug. 17, the stock is up 9% in a little over a month and a half. Further, since the company closed its special purpose acquisition company (SPAC) merger on Jul. 25, the stock is up about 1%.
However, this name reached a trough on Sept. 1 at $17.79. So, in the last month, LCID stock has also rebounded more than 38%. Now there is every reason to believe that this will continue, just as I suggested in my last article.
Where Things Stand for LCID Stock
Now that the company is officially producing revenue by delivering its EVs, LCID stock should begin to reflect a new valuation reality. CNBC says that the company is now seen as a “front-runner” to rival Tesla (NASDAQ:TSLA). Further, CEO Peter Rawlinson — Tesla’s former vice president of engineering — recently said the following:
“I’m delighted that production cars endowed with this level of efficiency are currently driving off our factory line.”
Lucid has two main vehicles in production right now. The company’s first car is called the Air Dream Edition, a $169,000 special edition of its flagship sedan. Additionally, its entry-level model — the Lucid Air — is currently priced at $77,400.
This company claims it now has more than 13,000 reservations and is on track to produce 20,000 sedans next year. That should bring in $2.2 billion in revenue. Starting in 2023, the company will also produce an SUV EV model called the Gravity.
Specifically, a July slide deck presentation shows how Lucid expects to ramp up its production and sales (Page 65). For example, the company foresees moving from 20,000 units in 2022 and $2.21 billion in revenue estimates to 49,000 units in 2023 and $5.53 billion. By 2026, Lucid then expects to make some 135,000 units, including 8,000 units of “future models.” It also expects revenue to hit $13.98 billion that year.
What Lucid Is Worth
I went into detail about Lucid’s value in my previous article, but I’ll do a quick recap here as well. To summarize, I took the present value of the company’s 2026 revenue forecasts ($22.756 billion) and used a multiple of that to value LCID stock.
This results in its 2026 revenue at a present value of $14.819 billion. From there, we can value Lucid at five times the net present value of its future sales. That makes the target market value $74.1 billion. This is 74.2% over its Oct. 1 market value of $42.54 billion.
That implies that LCID stock is worth $42.87 per share (i.e, 1.742 x $24.61, the Oct. 1 close price). This is my updated target price.
What to Do with LCID Stock
Analysts are not as ebullient about LCID stock as I am. Seeking Alpha’s survey of three analysts indicates an average price target of $23.33. That represents a potential decline of about 5% from the Oct. 1 close price. Additionally, Tipranks shows the same target.
However, recently, two out of three analysts have come out with buy recommendations on LCID in the past month according to Yahoo! Finance. These are Bank of America and Citigroup.
Given that many on Wall Street don’t see the stock rising, though, we can use probability to derive an expected return. For example, let’s say there is a 40% chance that Wall Street is right and LCID stock is worth just $23.33. Likewise, let’s assume that there is a 60% chance that my target of $42.87 is correct (I like my estimate better). This implies that the weighted average price will be $35.05 per share. (i.e., 0.60 x 42.87 + 0.40 x $23.33). Therefore, the expected return is 42.4%.
For most people, making a 42% expected gain is a pretty good return on investment. As such, now might be a good time for growth-oriented investors to take an initial investment in LCID stock.
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On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) 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.
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