Why Lucid Group Stock Died Today -- Then Got Better

Key Points

• Lucid will proceed with its previously announced plan to reverse-split its shares 10 for 1.

• Lucid's share price, currently about $2, should be closer to $20 after the reverse split.

• The reverse split will prevent Nasdaq from delisting Lucid stock.

• 10 stocks we like better than Lucid Group ›

At first, it seemed Lucid Group (NASDAQ: LCID) investors were in for a very bad day today -- but things are improving.

Last night, the luxury electric car company confirmed it will proceed to reverse-split its shares 10 for 1. The split had already been announced a month ago, but management hadn't yet decided to pull the trigger. Once it did, last night, it set the stage for a sell-off of more than 5% in Lucid stock this morning.

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The good news is that, thanks to Federal Reserve Chairman Jerome Powell and comments he made at the Federal Reserve conference in Wyoming earlier today (to the effect that interest rates might come down in September), the stock market is rallying -- and this rally is pulling up Lucid stock along with it.

Result: As of 1:30 p.m. ET, Lucid stock is down "only" 0.7%.

Image source: Getty Images.

Lucid's reverse stock split

But let's focus on the reverse stock split. What does this mean if you own Lucid stock?

As the name implies, a reverse split is the opposite of an ordinary stock split. Instead of splitting every share you own into multiple shares, each costing a fraction of the original price, this reverse split will glue together every 10 shares of Lucid you own into one single share -- ideally at a price 10 times what each original share cost.

The goal: To lift Lucid's stock price -- which at $2 a share is dangerously close to the $1 price at which the Nasdaq might delist the stock -- up closer to $20 a share, where it should be safe from delisting.

Is Lucid stock a buy?

Note that the reverse split doesn't change the facts surrounding the company at all. It doesn't change the fact that Lucid is losing $2.3 billion a year, that it's burning more than $3 billion in cash annually, or that at current burn rates, Lucid could run out of money in less than one year.

It also doesn't make Lucid stock any more of a buy.

Should you invest $1,000 in Lucid Group right now?

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.