What happened
It's Thursday, and for the second day in a row, shares of electric car start-up Lucid Group (LCID +3.19%) are rolling downhill -- down 6.4% as of 3:15 p.m. ET.
I don't know about you, but I blame Redburn Research for that.
Image source: Getty Images.
So what
As you've probably heard by now, the U.K. stock shop put out a report on both Lucid and its rival Rivian Automotive earlier this week.
You've probably also heard that Redburn wasn't 100% enthusiastic about Lucid in this report, rating the stock only neutral (Rivian stock got a buy rating), and valuing Lucid at only $39 per share (Rivian costs closer to $43 today, making the stock look overvalued).
What you may not have heard is just how long it might take Lucid to grow its way into that valuation. As TipRanks.com reported yesterday, Redburn doesn't expect to see Lucid produce any profit whatsoever before 2026 at the earliest. Even by 2027, the analyst forecasts profits of only $0.48 per share -- enough to give the stock a P/E ratio of 89 on earnings that might (or might not) appear before five years from now.
Now what
Suffice it to say that's a very high valuation to place on Lucid's uncertain prospects -- and a very long time to wait to learn whether Lucid will ever earn a profit at all. It doesn't, however, necessarily mean that Lucid stock won't perform well between now and then, and sustain its unreasonably high valuation, if the company succeeds in hitting the benchmarks Redburn has set for it.
Consider: From essentially zero car sales today, Redburn anticipates that Lucid will grow into a 25,000-electric-cars-per-year operation by the end of 2022, then more than double its production to 61,000 units in 2023. Growth will slow to 50% in 2024, as Lucid ramps up toward 100,000 units. Then, between 2025 and 2027, Redburn expects to see Lucid grow annual production to 300,000 EVs per year.
If Lucid passes these milestones as planned, on time and on schedule, investors can look forward to a whole lot of optimistic press releases between now and 2027 -- the kind of positive PR that can sustain a stock even at unreasonable levels of valuation (cough, cough, Tesla). Any failure to meet expectations, however, could lead to more down days for Lucid -- days that will feel a lot like today.
