3 Reasons to Avoid LCID and 1 Stock to Buy Instead

While the broader market has struggled with the S&P 500 down 3.3% since November 2024, Lucid has surged ahead as its stock price has climbed by 17.5% to $2.55 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now the time to buy Lucid, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Is Lucid Not Exciting?

We’re glad investors have benefited from the price increase, but we're swiping left on Lucid for now. Here are three reasons why LCID doesn't excite us and a stock we'd rather own.

1. Low Gross Margin Reveals Weak Structural Profitability

Cost of sales for an industrials business is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics.

Lucid has bad unit economics for an industrials business, signaling it operates in a competitive market. This is also because it’s an automobile manufacturer.

Automobile manufacturers have structurally lower profitability as they often break even on the initial sale of vehicles and instead make money on parts and servicing, which come many years later - this explains why new entrants whose fleets are too young to generate substantial aftermarket revenues have negative gross margins. As you can see below, these dynamics culminated in an average negative 161% gross margin for Lucid over the last five years.

2. Cash Burn Ignites Concerns

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Lucid’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 537%, meaning it lit $537.41 of cash on fire for every $100 in revenue.

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Lucid burned through $2.78 billion of cash over the last year. With $3.61 billion of cash on its balance sheet, the company has around 16 months of runway left (assuming its $2.01 billion of debt isn’t due right away).

Unless the Lucid’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Lucid until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

Lucid’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at $2.55 per share (or a forward price-to-sales ratio of 4.4×). The market typically values companies like Lucid based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. We’d recommend looking at the Amazon and PayPal of Latin America.

Stocks We Like More Than Lucid

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.