Lucid Motors (NASDAQ:LCID) enjoyed a period of time where it had robust momentum, but that period has since faded. LCID stock is down about 70% from the highs in February, when the stock topped out near $65.
Now near $20, Lucid stock bulls have been served a hearty plate of humble pie.
Regardless of what happened in the past though, investors are focused on the future. Is this a name to own or is not? By the end of this article, we’ll solve that question.
The Most Important Level for LCID Stock
Have you ever heard of the saying, “a broken stock but not a broken business?”
It means the charts are not bullish — or the technicals are “broken” — but the business remains healthy. That can happen when a company is doing well, but the overall market goes through a large drawdown or pullback. The stock gets dragged down with the indices or sector, but overall continues to do quite well.
The problem with LCID stock is that it has a broken chart, but it’s lagging the fundamentals to bail it out.
The $17.60 mark was critical in April and May, as the stock bounced from this level twice. On Sept. 1, Lucid gapped lower below this mark, bottoming at $16.12. While it closed lower by almost 11% that day, it finished the day at $17.79.
At the time, we called out the aggressive long setup, pointing out that the stock had to hold up above the low. Since then, we’ve seen a pretty solid rally. However, LCID stock is now struggling with the $20 to $21 zone.
If it can clear this area, the 200-day and 50-day moving averages are in play. Above that and $25 is possible, followed by the $27.50 to $29.50 area.
Make no mistake about it: Lucid Motors has an uphill battle, but it has to hold up over $17.60. Back below this mark puts the $16.12 low in play. Below that and who knows where this stock bottoms.
Lucid Lacks Fundamental Strength
I don’t really get the hype for these automotive newcomers. My personal opinion is that I’d rather bet with the stalwarts in the space, even though they too have high valuations. That’s names like Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO). That or bet on the traditional automakers like Ford (NYSE:F) and General Motors (NYSE:GM). These companies have existing businesses to lean on while they work on EV options.
Realize that Lucid currently commands a market capitalization of $32.5 billion, despite no meaningful revenue. That’s even as a company like Ford trades with a market cap of just under $50 billion but does a ton of business.
The forecasts for Lucid are impressive, though.
Analysts expect just over $2 billion in sales next year and $4.7 billion in revenue in 2023. Based on current projections, that leaves LCID stock trading at roughly 16 times forward sales and 7 times 2023 sales. This sounds more like a tech company than an automaker.
It seems to me that everyone is looking for the next Tesla. Combined with the SPAC hype, these stocks accelerated to unsustainable valuations. For many, they still don’t justify the valuations they have.
Lucid is valued at $35 billion without any real sales. Even if it jumps to $4.7 billion in 2023 revenue, how much growth will be left beyond that?
The EV world is vastly different from when Tesla was rolling out its third model and Nio took off in China. Now there are dozens of EV startups entering the space, while every traditional automaker — from Ford to Mercedes to Toyota (NYSE:TM) — is working on electrifying its fleet.
How can Lucid compete with that?
The Bottom Line
The charts show a possible way upward, and with shares above $17.60, those that are bullish have a level to lean on. But if the stock breaks this mark, it’s not one that I want to be long.
Like I said earlier, the fundamentals simply aren’t good enough to bail LCID stock out should the stock turn lower.
On the date of publication, Bret Kenwell 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.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.