Is Lucid Group Stock Expensive? 4 Charts to Explore

Key Points

• Lucid Group should grow faster than Tesla and Rivian this year.

• Financial and execution risk remain very high.

• 10 stocks we like better than Lucid Group ›

On paper, Lucid Group (NASDAQ: LCID) looks expensive. Shares trade at a price to sales ratio of 6. Fellow electric car stock Rivian, for comparison, trades at just 3 times sales -- a 50% discount.

Lucid stock is cheaper than it appears, however. But is it cheap enough to attract growth investors looking for maximum gains? Let's find out.

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Lucid is growing much faster than Rivian and Tesla

Stocks trade at different valuations for many reasons. One of the biggest factors is growth expectations. How much the market believes a company will grow sales over the next few quarters and years has a big impact on valuation multiples.

This fiscal year, analysts expect Lucid to grow sales by around 62%. Rivian, meanwhile, is expected to grow sales by just 6.2%. Tesla, on the other hand, is expected to see its sales base shrink by around 5%. Given these expectations, Lucid's valuation suddenly becomes much more reasonable. When you look at the company's forward price to sales ratio -- that is, what its price to sales ratio should be based on expected sales growth -- shares trade at just 4.3 times revenue. That's a notable discount to Tesla's 12 times revenue valuation multiple, and only a slight premium to Rivian's 3.2 times revenue multiple.

RIVN Revenue Growth Estimate for Current Fiscal Year data by YCharts

Of course, valuation multiples don't just include growth expectations for the next fiscal year. They also factor in longer term growth expectations. This is one reason why Tesla shares retain their premium valuation multiples despite sluggish near term growth forecasts. Some experts, for example, believe that the global robotaxi market will someday be worth up to $10 trillion. After more than a decade of investment, Tesla launched a pilot version of its robotaxi service in Austin, Texas, earlier this year. Dan Ives, an analyst at Wedbush Securities, believes this division alone could soon add $1 trillion to Tesla's market cap.

So far, Rivian hasn't revealed much regarding its potential robotaxi plans. But Lucid unveiled a major partnership with Uber Technologies this summer. The deal calls for Uber to invest $300 million into Lucid's business, plus a large order of Lucid's vehicles that will eventually power Uber's self-driving taxi service.

Tesla has a big lead in this department. It will wholly own its self-driving taxi business, while Lucid will simply supply Uber with the necessary vehicles. But Lucid's exposure to this multi-trillion dollar opportunity could give it a higher long term growth ceiling. The issue will be timing and capital.

Last quarter, Lucid posted a net loss of $539 million. Uber's robotaxi service, meanwhile, won't start until late 2026 at the earliest, with Lucid's contract spanning six years. The $300 million investment by Uber, therefore, fails to cover even a single quarter's losses for Lucid, with additional revenue opportunities from the deal potentially many years away. So Lucid shares are cheaper than the appear at first glance, but there are many credible reasons for the remaining discount.

Source: Getty Images

Smaller EV stocks like Lucid have more room for growth

Lucid has higher growth expectations for this fiscal year. It arguably has a higher growth ceiling than Rivian, too, considering its robotaxi exposure. But the company has another advantage that neither Rivian nor Tesla have: a market cap under $6 billion, with a sales base under $1 billion.

Typically, smaller companies have an easier time garnering a high valuation multiple. After all, it's easier to double in size as a $5 billion business than as a $500 billion business. Lucid is by far the smallest EV maker when compared to Rivian and Tesla. Its sales would have to grow five times in value to reach Rivian's current sales base. It would then need to grow another 18 times in value to reach Tesla's sales base.

RIVN Revenue (TTM) data by YCharts

Put simply, Lucid's small size gives its a longer potential runway for growth than Tesla and Rivian. But there are several critical risks to be aware of with Lucid. Both Rivian and Tesla are better financed -- a huge advantage in a capital intensive industry. Plus, Lucid's longtime CEO left the company earlier this year, adding uncertainty to the company's growth timeline. And while the deal with Uber provides excitement, the actual financial impact may be limited, especially over the short term.

Lucid stock is cheaper than at first glance. But the overall execution risks should keep most investors on the sidelines.

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla and Uber Technologies. The Motley Fool has a disclosure policy.