To The Moon

In today's edition, we will track the fundamental readings of long-term bullish companies in strong (TigerTrade Top 1 Gainer) concepts each week and look forward to your attention and discussion.

Disclaimer: Capital at risk. This is not direct financial advice or a recommendation to acquire or dispose of any investment, but for communication only.

3 of the 3 indexes closed green.$NASDAQ(.IXIC)$ (+4.32%) led, and$DJIA(.DJI)$ (+1.81%) lagged. The technology sector continues to lead the market higher.

The 5 best-performing concepts of last week are Tesla Concept, New Energy Vehicle Concept, AI Concept, SPACs, and Solid State Battery.

Tesla earnings recharged shares by 33.34% this week which led the new energy vehicle concept to the top 5. In addition to $Tesla Motors(TSLA)$, the best performer in the new energy concept is $Lucid Group Inc(LCID)$.

Considering the different perceptions of the stock, this time TigerPicks choose $Lucid Group Inc(LCID)$ to have a fundamental highlight to help users understand it better.

$Lucid Group Inc(LCID)$

Lucid has seen its shares explode upward on Friday due to rumors about a potential bid by Saudi Arabia's Public Investment Fund ("PIF"). An attempted takeover by Saudi Arabia could indeed make sense due to several reasons, but as no official bid has been made yet, buying solely on this rumor is risky.

lucidmotors.com

On Friday, Lucid Group saw its share price soar by as much as 75%on the back of a report about a potential bid from Saudi Arabia's Public Investment Fund. Throughout the day, LCID stock pulled back to some degree, however, shares are still currently trading up 40% from the previous day's closing price.

No official statement has been made about a takeover bid, neither by Lucid Group nor by Saudi Arabia's PIF.

Below are the key factors that may affect $Lucid Group Inc(LCID)$ s' future price, also Tigerpicks gathered the target price forecasts for the future 12 months for your concern but not for trading advice.

1. Could A Takeover Make Sense?

2. Is LCID A Buy Based On This Rumor?

3. Estimating Lucid's 2030 Potential and Valuation & Risks

Could A Takeover Make Sense?

We don't know a deal is certain until it is announced -- if it ever gets announced. But we can try to evaluate whether such a takeover by Saudi Arabia's PIF could make sense.

Saudi Arabia's PIF is the country's sovereign wealth fund worth hundreds of billions of dollars. The fund thus surely has the required means to buy Lucid, which traded with a market capitalization of $16 billion prior to the rumors.

PIF has a stated mandate of driving the transformation of the Saudi Arabian economy. Here's a statement from the fund's official website:

Saudi Arabia is currently generating a large portion of its gross domestic product, and an even bigger portion of the government's income, from oil production and sales. While that industry is doing very well in the current environment, the country's leadership has a goal of diversifying the economy over time.

PIF is also investing in more down-to-earth assets, however, which includes Lucid Group -- PIF already owns a stake in the company. In fact, with a 62% stake, PIF is the majority holder of Lucid Group already, prior to any rumored takeover bids. PIF has also regularly added to its stake in LCID, which includes a $900+ million investment in November when LCID was already trading publicly for quite some time. This tells us two things:

First, PIF is obviously seeing future value in Lucid, otherwise, they wouldn't have bought into the company in the first place.

Lucid, as a pure EV company, makes sense as a partner/target for Saudi Arabia's PIF -- it helps diversify the economy away from oil/petrochemicals and gives Saudi Arabia exposure to a major growth market.

Lucid's premium/luxury approach also seems suitable for Saudi Arabia, as there is a sizeable premium/luxury auto market in the country already, and highly-priced vehicles are also sold regularly in other Gulf nations such as the UAE, Qatar, and so on. Lucid has already stated that its first factory outside of the United States would be built in Saudi Arabia, which aligns the company and the country even more -- Saudi Arabia is not only attractive as an end market for the electric vehicle ("EV") maker, but also as a manufacturing hub, thanks to low taxes, low energy prices, and so on.

Second, Saudi Arabia's PIF seemingly does not see Lucid as an overvalued stock.

When the fund added to its stake last November, Lucid was trading for around $13 per share, which is well above the share price LCID traded at before the rumors emerged ($9 per share). When PIF was willing to add to Lucid in the low teens, it could indeed make sense that the fund would be willing to buy the whole company at a similar price.

So while a takeover bid is far from guaranteed, it would make sense from PIF's side, I believe -- the fund already owns a major stake, seemingly sees LCID as attractive as shown by recent purchases, the company and the country are already aligned and will work on manufacturing facilities in Saudi Arabia, and LCID fits PIF's goals of moving into new high-growth markets.

Would a sale to Saudi Arabia's PIF also make sense for Lucid? The company could see some benefits as well. First, if taken private by the fund, pressure when it comes to delivering near-term results would wane. Public markets are oftentimes criticized for their near-term focus, but when LCID is owned by PIF, it can focus on developing the company for the long run -- quarterly results wouldn't matter as much.

If LCID would be taken private, regulatory and administrative burdens that are connected to being a publicly traded company would cease to exist. That would not only result in lower costs for LCID, all else equal, but it would also result in manpower being available for other tasks. When fully owned by PIF, raising additional money could also be easier for Lucid should it need additional funding -- it could just access funds from its sole owner, and there would not be any squabbles overvaluations and other items.

All in all, there are thus good arguments for a takeover by PIF, as it could make sense for both parties -- LCID would likely have easier access to growth capital and would not feel the same pressure of delivering near-term results, while buying and growing an EV champion fits well with Saudi Arabia's Vision 2030.

Is LCID A Buy Based On This Rumor?

The fact that a takeover of LCID by PIF could make sense does not mean that it will actually happen, however. It also doesn't mean that investors should buy Lucid now, following a sizeable jump in its share price, in the hopes of seeing near-term returns if PIF does indeed make a bid for Lucid.

While that could work out in case there is a takeover bid at a high-enough price, buying Lucid for this purpose seems like speculation to me.

If there is no takeover bid, Lucid Group would most likely see its share price pull back -- when it was trading at around $9 before these rumors emerged, there's no good reason for LCID to trade well above that level in case the rumor turns out to be wrong, which could very well be the case.

Lucid has strong tech, its vehicles receive great reviews (and awards), and in my personal opinion, they look great. But at the same time, Lucid is still far from a large player, as it is only selling a couple of thousand vehicles per quarter for now. That is why Lucid is still far from being profitable, which is why it is highly unlikely that its market capitalization will grow much in the near term unless there is a takeover bid.

Lucid trades at 7x 2023's expected revenue, while peers Tesla and BYD Company Limited traded at 5x and 2x revenue, respectively. Lucid thus does not look like a bargain compared to other EVs, although it arguably has a better relative growth potential over the coming years thanks to being smaller still.

Estimating Lucid's 2030 Potential and Valuation

Now the most important question: what would be a reasonable valuation anchor for LCID? Without a doubt, different analysts will value LCID differently, and the price target will vary significantly. But here is how I would approach the task.

First, I want to acknowledge that LCID is a high-growth company. And accordingly, I want to base my analysis not on current numbers, but on what I believe could be achieved in 2030. That said, for the base-case, I anchor my valuation on an estimated 200,000 car sales in 2030, and an average sales price per car of $110,000. Furthermore, I assume a net profit margin of only 10%. Notably, this is below both Tesla's2022 net profit margin of 15% and Porsche's2022 net profit margin of close to 14%. Thus, in my opinion, 10% is a very reasonable assumption if one considers increased economies of scale. (Note that I expect sales volume to be almost 10x.)

Personally, I believe 200,000 cars sold is not unreasonable, given Lucid's technology advantage in the EV market and strength of brand. It is about one-third lower than what Porsche is currently selling. However, readers should feel free to challenge my assumption - see sensitivity table below.

Based on this, I calculate a $2.2 billion annuity, with a 2030 present value equal to $31.4 billion. This number discounted back to early 2023, assuming a 10% rate and adding a $998 million billion of net cash, gives an equity value of $15.7 billion, or $9.32/share.

Cavenagh Research

What if we vary the net profitability margin and number of car sales? I have enclosed a sensitivity table that shows the result of different combinations. For reference, red cells show upside as compared to LCID's current valuation, and green cells show upside.

• Upside case $18.92/share
• Downside case $2.34/share

Cavenagh Research

Risks

Lucid investors should most certainly monitor the competitive environment in the market for EVs, as leading carmakers are already starting to cut prices. Moreover, investors should consider that sentiment towards risk assets (especially EV stocks) remains depressed. And given multiple macroeconomic headwinds, LCID stock may suffer from share price volatility even though the company's fundamentals remain unchanged.

Stock Price Forecast:

Here are the target price forecast for the future 12 months from analysts on CNNMoney.com.

The 7 analysts offering 12-month price forecasts for Lucid Group Inc have a median target of 12.00, with a high estimate of 18.00 and a low estimate of 5.00. The median estimate represents a -7.05% decrease from the last price of 12.91.

Hope this analysis helps you get more understanding of the company's whole image, Tiger Picks will follow up the monthly performance as a longterm track.

Resource: 

https://seekingalpha.com/article/4573137-lucid-plus-saudi-arabia-equals

https://seekingalpha.com/article/4571679-lucid-group-risk-reward-attractive

Some other symbols active in the same concept include $Fisker Inc.(FSR)$ & $Faraday Future Intelligent Electric Inc.(FFIE)$.

What are your thoughts on $Lucid Group Inc(LCID)$?

Bullish or bearish? Please leave your comment below.