Why Lucid Stock Soared Today

Key Points

• Cantor Fitzgerald analyst Andres Sheppard raised his price target on Lucid to $20 a share.

• Lucid used to cost $2 a share, but costs more than $18 after its reverse share split.

• 10 stocks we like better than Lucid Group ›

Lucid Group (NASDAQ: LCID) stock soared 13.8% to close on Friday on some apparently good news... that actually wasn't all that great.

This morning, Cantor Fitzgerald analyst Andres Sheppard raised his price target on Lucid stock from $3 to $20. On the face of it, this sounds like Sheppard just got 7x more optimistic about Lucid. Except this is actually the 180-degree wrong way to read this hike.

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Lucid's reverse split

Lucid, if you recall, conducted a reverse stock split last month, exchanging one "new" Lucid share for every 10 "old" Lucid shares of its shareholders'. At the time, Lucid stock cost about $2 a share, and Sheppard's then-current price target of $3 represented a prediction the stock would gain 50%.

Now that the reverse split has taken effect, Lucid's new shares cost $18 and change each. Sheppard's new price target of $20, therefore, represents a guess that Lucid stock will gain less than 10% over the next 12 months.

It's effectively a downgrade of the stock. And yet, investors are bidding Lucid stock up today.

Is Lucid stock a sell?

Now mind you, Sheppard still thinks Lucid stock will go up -- just not up a lot -- and he isn't recommending you sell the stock. Instead, he rates Lucid "neutral" -- but "sell" seems a more logical rating here.

Why? Begin with the fact that Lucid has never earned a profit, and that most analysts agree it will be 2031 before the company even has a chance of becoming profitable. Consider too that Lucid is burning through nearly $3 billion in cash annually, and has less than $3 billion cash in the bank at present.

All this means that there's a good chance by the time 2031 rolls around, Lucid won't even be around to enjoy it.

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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.