Lucid Group (NASDAQ:LCID) has been making headlines recently with a series of investment moves that signal a potential turnaround for the company. The decision by DNB Asset Management, a Norway-based financial institution, to double its holdings in LCID stock is a strong vote of confidence which could potentially be self-reinforcing by other large asset allocators. But is now the time to consider buying?
Lucid Group is a relative newcomer in the EV market, which is dominated by Tesla (NASDAQ:TSLA). However, Lucid’s focus on luxury EVs and powertrain manufacturing sets it apart from the competition. Lucid’s first car, the Lucid Air, has garnered attention for its sleek design and impressive specs, which rival those of Tesla’s Model S. However, Lucid’s high price points and challenging market conditions have resulted in soft delivery trends.
This largely explains the company’s poor performance. We can see relative to Tesla (which in fairness is not an exact apples-to-apples comparison), Lucid has not been the preferred stock play when it comes to EV hype.
In a strategic move, Lucid Group recently signed a deal with Aston Martin (OTCMKTS:ARGGY). Under the agreement, Aston Martin will use Lucid’s next-gen electric motors for its future EVs. This partnership not only solidifies Lucid’s position in the EV industry, but also opens new opportunities for growth and expansion.
All of this on the surface is positive for the company. But keep in mind the fundamentals. The company has been burning through cash, recording losses of millions of dollars every quarter. Yes, Lucid still has a substantial amount of cash on hand, thanks to a capital injection from Saudi Arabia’s sovereign wealth fund, but cash burn is a tricky thing to be bullish on.
Looking ahead, Lucid Group has ambitious plans for growth. The company aims to increase its annual production significantly in the coming years. It also plans to launch an SUV model, the Gravity, which could help it tap into the growing demand for EV SUVs. Additionally, Lucid’s partnership with Aston Martin could create new avenues for growth and expansion. Again, all positive developments, yet the stock is simply not moving in a way consistent with the headlines.
Buy LCID Stock But Keep a Close Eye on Cash Burn
Personally, I think LCID stock is worth paying attention to. It’s hard to unseat Tesla in people’s minds, but the company does have meaningful interest from large players. This is a strong signal for future stock price appreciation.
The company’s focus on luxury EVs, its strategic partnerships, and recent investments from institutional investors are promising signs. However, its financial health, production numbers, and volatile stock price are areas of concern.
Lucid I think is probably worth considering a small allocation to in a portfolio, with the caveat that cash burn is the critical thing to watch. The company is moving in the right direction and its stock hasn’t performed well, but if I’m right that we are close to a risk-off period, any kind of broad market dislocation could make this a really appealing buy in the months ahead.
On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.