Lucid Is Gaining Today -- Is the Stock a Buy Right Now?
Lucid (LCID) stock rose 3.8% amid a broader market dip, following a 25 basis point interest rate cut by the Federal Reserve. This rate reduction could help Lucid refinance its $2.04 billion long-term debt, improving its financial outlook. However, the company continues to face significant losses on EV sales, raising concerns about its investment viability. While backed by Saudi Arabia's Public Investment Fund, risks of stock dilution and poor fundamentals make Lucid a risky buy at this time.
Lucid (LCID 3.91%) stock is gaining ground in Wednesday's trading. The company's share price was up 3.8% as of 3:30 p.m. ET despite a 0.3% dip for the Nasdaq Composite.
Lucid stock is moving higher today following news that the Federal Reserve has cut interest rates by 25 basis points. The rate cut is good news for Lucid along multiple lines.
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Is Lucid stock a buy right now?
Lower interest rates could allow Lucid to refinance its debt with lower interest payments. The electric vehicle (EV) company closed out the second quarter with roughly $2.04 billion in long-term debt, and Federal Reserve chair Jerome Powell's recent suggestion that more rate cuts will follow the 25-basis-point reduction is a positive development for the business's financial footing.
Lower rates have also historically been good for companies with highly speculative growth outlooks. As the cost to borrow money comes down, risk profiles are reduced for both businesses and investors.
On the other hand, Lucid's fundamentals continue to look very risky from an investment perspective. The business continues to post large losses on every EV that it sells, and a potential pivot to profitability is years away even in extremely optimistic scenarios.
The impact of Lucid's large losses is mitigated somewhat by heavy backing from Saudi Arabia's Public Investment Fund (PIF) -- the company's majority stakeholder. Conversely, continued financial backing from the Saudi PIF comes with its own risk factors.
While the Saudi PIF will likely continue to support Lucid despite the business's large losses, the Saudi fund will likely continue to increase its ownership stake in the business in exchange for new capital injections. Given the risks posed by stock dilution and shaky business fundamentals, Lucid looks like a very risky buy right now.
