Why Lucid Stock Keeps Going Up
Key Points
Lucid missed earnings with a $2.30 per share loss last night.
Investors are cheering a 30% slow-down in cash burn.
Lucid still has less than one quarter's worth of cash remaining.
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Lucid Group (NASDAQ:LCID) stock ripped higher Tuesday morning, rising 12% through 10 a.m. ET -- its third straight day of gains -- despite missing earnings last night.
Heading into Lucid's Q3 earnings report, analysts weren't optimistic, forecasting the luxury electric car company would lose $2.25 per share on more than $400 million in quarterly sales. Lucid actually lost $2.30 per share, and its sales were only $350 million.
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Lucid Q3 earnings
So why aren't investors upset by the miss? CEO Silvio Napoli insists that despite the disappointing numbers, Lucid is on track and its turnaround "is beginning to show progress." Lucid is taking "decisive actions to align our manufacturing capacity with demand, reduce inventory and lower operating expenses."
Although not yet profitable and not free cash flow positive either, the company reduced its cash burn rate by 30% from last quarter, sold stock worth $1.75 billion to replace the cash it is burning, and ended Q3 with cash reserves still above $930 million.
What's next for Lucid stock?
Admittedly, Lucid still burned more than $1 billion in cash last quarter, and nearly $4 billion year to date. But it's got enough cash on hand to keep it in business for almost another quarter, which pushes out the bankruptcy risk a bit. With $2 billion in "total liquidity" (which includes the ability to add to its borrowing), the company might even be able to keep the doors open and the lights on for two more quarters.
What happens after that, though, I shudder to think, and my strong concern is that investors buying into today's rally are cruising for a bruising. Lucid stock remains a cash bonfire, and I wouldn't touch this stock with a proverbial 10-foot pole.
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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.
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