Lucid Stock: Is It a Falling Knife or a Deep-Value Buy?

Shares of Lucid Group (NASDAQ: LCID) have been in a free fall over the past year, plummeting 76% during that time frame. Last week, investors were spooked about this already risky stock due to rumors that it was considering filing for bankruptcy. The company denied the reports, telling investors that it has sufficient liquidity to fund its operations.

While the stock has been rebounding in recent days, there is no shortage of question marks surrounding the business. Is Lucid's stock too risky to invest in, and is it in danger of falling even lower, or could it be a steal of a deal given its low valuation?

Image source: Getty Images.

Lucid's financials are troubling

Regardless of whether Lucid files for bankruptcy or not in the near future, investors should recognize the significant risks associated with investing in the business today. Lucid is fighting for market share in a highly competitive electric vehicle (EV) market. While it has been growing sales in recent years, what's concerning is that its losses have eclipsed its revenue, raising questions about whether its business is sustainable.

Last year, Lucid reported revenue of nearly $1.4 billion, but its net loss was more than double that, totaling $3.8 billion. The company's cost of revenue was even more than its top line, with the business's ability to turn a profit being a serious question mark for investors, especially with rising competition potentially putting a further strain on margins in the future.

From a cash flow perspective, things don't look any better for Lucid: the company burned through $2.9 billion last year just from its day-to-day operating activities, up from just over $2 billion a year earlier. As the business is scaling, its poor financials are looking even worse.

This is a stock that is full of risk

Lucid's modest market cap of $2.8 billion may have some growth investors optimistic about the stock's future returns. However, the company must also demonstrate that its business is sustainable and that it has a viable path to profitability. Without that, it'll be difficult to convince the market that it's anything but a highly risky investment.

Although the company may not be filing for bankruptcy right now, that doesn't mean its business is in good shape. Its financials show what a troubling state Lucid is in and why the stock is worth avoiding, as it can easily fall much further.

David Jagielski, CPA 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.