Why Lucid Group Stock Is Plummeting Today

Key Points

• Lucid executed a reverse stock split in order to boost its share price.

• But the stock has already tumbled more than 15% since the split took effect.

• 10 stocks we like better than Lucid Group ›

Shares of Lucid (NASDAQ: LCID) are falling on Wednesday, down 4.5% as of 3:50 p.m. ET. The drop comes as the S&P 500 and the Nasdaq Composite gained 0.2% and 0.7%, respectively.

The electric vehicle maker's stock continues to slide after it executed a 10-for-1 reverse stock split on Tuesday.

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Lucid executes a split

Lucid split its stock on Tuesday, but this was not a forward split -- the kind investors love to see -- it was a reverse split. The 10-for-1 reverse split means that, as trading opened yesterday, Lucid stockholders had 10% as many shares that were worth 10 times as much. This, in and of itself, doesn't change the dollar value of a stake in Lucid. If your stake was worth $5,000 before the split, it was worth $5,000 after -- at least in theory.

Image source: Getty Images.

The market tends to view reverse splits negatively, believing it signals bad times ahead. It often does. By and large, the move is used to avoid a delisting from the Nasdaq Stock Market or New York Stock Exchange, which both require minimum share values of $1.

As soon as Lucid executed the split, the stock fell. It's now down more than 15% from Tuesday's open.

Lucid is struggling

This is a crucial moment for Lucid, as the stock is sliding and the company continues operating deep in the red. Its newly released Gravity SUV must sell extremely well for the company to have a chance of surviving. While sales have been decent, they have not lived up to expectations thus far. I would stay away from Lucid stock. A turnaround appears less and less likely by the day.

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Johnny Rice 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.