Considering Lucid Motors' High Pricing Label? This Diagram Could Convince You Otherwise.
Considering Lucid Motors' High Pricing Label? This Diagram Could Convince You Otherwise.
Lucid Motors' (LCID -0.33%) stock may seem overpriced based on traditional valuation metrics like the price-to-sales ratio. With a ratio of 9.6, it's considerably higher than electric car competitors like Rivian, which has a ratio of 3.0. Even tech giant Tesla falls short, with a ratio of around 7.
However, Lucid's high price-to-sales ratio isn't a complete representation of its value. There's one factor that sets Lucid apart, and it might just make this stock a steal.
A hidden advantage in Lucid's valuation
There are several reasons why a company can boast a high price-to-sales ratio. One of the most common is skyrocketing sales. That's arguably the case with Lucid, which saw sales growth exponentially surpass both Rivian and Tesla last quarter. Conversely, Rivian experienced negative sales growth, leading to a less expensive valuation.
Looking towards the future, Lucid is predicted to grow sales by an impressive 118% in 2025, following the launch of its Gravity SUV. This growth is far ahead of Tesla's estimated 16.6% and Rivian's 11.6%.
While there's a long journey ahead for Lucid, if the company manages to hit its projected sales growth, share prices will trade at approximately 4 times forward sales. That's calculated using next year's projected sales.
This valuation is significantly lower than Tesla's current price-to-sales ratio and not too far off from Rivian's share price today. Despite the appearance of high cost, rapid growth rates make the valuation more than valid.
Whether Lucid can maintain these growth rates over the long term remains uncertain. However, its current price-to-sales ratio seems to overlook this potential.
Lucid's financials are far from perfect. The company grapples with a negative gross profit margin, and cash burn rates are sky-high, contributing to a negative free cash flow. Moreover, as a relatively new player in the automobile industry, Lucid lacks the scale and size of established competitors.
Yet, despite these challenges, Lucid has positive revenue growth forecasts for the 2024 fiscal year and expects 29% sales growth in 2025. This growth is driven by the introduction of new models like the Gravity SUV, which is expected to boost Lucid's share of the growing electric SUV market.
Rivian and Tesla, on the other hand, have their own unique valuation dynamics. Rivian shows better liquidity, with a lower debt-to-equity ratio. Tesla's valuation is fueled by strong revenue growth in services and energy, as well as its investments in autonomous driving technology. However, both companies face their own challenges, such as declining EV resale values and high interest rates.
So while Lucid Motors' stock faces significant financial challenges, its projected sales growth in 2025 and new product launches could potentially improve its valuation metrics in the future. But the current negative gross profit margin and high cash burn rate must be addressed to unlock Lucid's full potential.
In light of Lucid's exponential sales growth surpassing both Rivian and Tesla last quarter, investing in Lucid's stock might be worth considering, despite its high price-to-sales ratio. If Lucid manages to hit its projected sales growth of 118% in 2025, its valuation could drop significantly, becoming more affordable compared to Rivian and Tesla.
Considering Lucid's financial challenges, such as its negative gross profit margin and high cash burn rate, successfully addressing these issues could significantly improve its valuation metrics and unlock its full potential. With the launch of new models like the Gravity SUV, Lucid has the opportunity to boost its share of the growing electric SUV market, potentially improving its financial status and stock value.