Lucid Group (NASDAQ: LCID) investors received a majorly awaited update to start the trading week as the company released its second quarter 2023 earnings results, an event that sent the stock higher by as much as 8.5% during Monday's trading session. There is now a newfound sentiment coming from markets - and management - upon which investors can lean when considering a potential purchase in the stock.
Some significant achievements were delivered to investors within the earnings press release, and management is making sure to boast the news in the face of bears trying to compress the company's valuation via a lower stock price. Today, broader markets remind investors that the overall sentiment favors Lucid above other household-name competitors.
Some investors may be worrying that the company is still going through its 'growth stage', where companies are known to miss bottom-line profitability in the face of massive growth rates around revenue and units delivered. In the case of Lucid, this fact remains true while markets are placing a lot of excitement over the future potential sales in the company.
Major Adoption, Massive Results
Peter Rawlinson, Lucid's CEO and CTO, stated within the release that "We're on track toward achieving our 2023 production target of more than 10,000 vehicles, but we recognize we still have work to do to grow our customer base." a statement that could have sent investors into a two-way street.
Understanding that the company is on track to produce more than 10,000 vehicles for the year helps lay a foundation for future growth; why else would a firm like Lucid look to deploy resources toward production if there was no expected demand down the line?
This is the case for Lucid's technology, as Aston Martin Lagonda Global (OTC: ARGGY) has adopted the company as its new supplier of battery system technology and powertrain units. Considering that Aston Martin stock has been on a steady rise since the start of 2023, the assumption can be made that the anticipated addition of Lucid's parts is raising future optimism.
These long-term contract commitments with Aston Martin are worth approximately $450 million. Still, more than that, this relationship can act as a gateway for other high-end luxury brands to join a possibly successful case study. Furthermore, the company finalized a contracted agreement to ship vehicles to the Kingdom of Saudi Arabia.
The amount of cars and net dollar value of this agreement has yet to be disclosed, though it can still act as a checkmark toward a potential investment. The growth story begins to make a lot more sense once investors realize that order pipelines are not only growing, but the company has also set its balance sheet up for future success.
$6.25 billion of total liquidity was held by the end of the quarter, preparing the company for any necessary quick pivots that may come, especially now that new customers have been signed and there is rising expected demand on the way as well. As the future can be a bit speculative, investors can go back to the past results and realize that the future momentum is more than justified.
55% revenue growth over the past twelve months is just the beginning of the story, as the rising number of units delivered to new customers will help the brand achieve economies of scale, which is a fancy way of saying that costs can be spread out across more units and get closer to profitability.
Markets may be acutely aware of this fact, and investors can directly gauge the market sentiment toward the future expected sales and their underlying quality, specifically via these valuation multiples.
Understanding The Future
Traders typically look to future valuation multiples to determine where the momentum and favoritism from markets will be headed; commonly used metrics include the forward price-to-earnings multiple and price-to-sales ratio. Since Lucid has yet to achieve net profitability, investors can switch their focus toward sales growth and valuations.
Lucid's analyst ratings and future sales expectations may be the final loop to close for investors to realize just how much potential this stock has in store for the future. A 43% consensus upside potential from today's prices, alongside an implied 190% revenue growth rate for the next twelve months, is sending the stock's valuation to the top of the list today.
Money likes growth, and markets like money, so it would be logical that the market will follow and reward those names that promise the most healthy and sustainable growth. Lucid stock trades for a 19.1x P/S ratio, which is significantly above those ratios for names like Rivian Automotive (NASDAQ: RIVN) and NIO (NYSE: NIO), who are selling for a 10.8x and 3.8x multiples respectively.
Like most products and services, those names and providers that command a higher price (a premium) than other comparable names usually carry an underlying justification. Whether it is reliability, quality, or other factors, markets are willing to pay a higher price for each dollar of sales in Lucid relative to other comparable companies. Investors on the fence waiting for a lower price should think twice about missing out on all the fun.