Lucid stock just had its best day in about a year—and it’s not clear exactly why.
It really was a spectacular move. Lucid stock finished the day up 27% on Monday, while the
S&P 500
and
Nasdaq Composite
rose 0.8% and 1.1%, respectively. It was the best day for the shares since Jan. 27, 2023, when they rose 43%, according to Dow Jones Market data.
The question is why. There doesn’t seem to any new information about the company. It isn’t scheduled to report earnings until Feb. 21, and the most recent SEC filing, from Jan. 26, concerns a $1 million bonus paid to Eric Bach, Lucid’s chief engineer, after the Lucid Gravity was revealed at the Los Angeles Auto Show on Nov. 16. Lucid didn’t immediately respond to a request for comment about the move in the stock.
A short squeeze is always one explanation for seemingly incredible stock moves. Short selling involves borrowing stock investors don’t own and selling it, betting that prices will decline allowing an investor to buy it back for a lower price later. When too many short sellers have the same idea, there is the risk of a squeeze—when they all try to buy back the borrowed stock at once.
About 30% of the Lucid shares available for trading have been borrowed and sold short. That’s incredibly high. The average short interest for a stock in the S&P 500 is roughly 1.5%.
Still, what caused the short squeeze? Grasping at straws, one aggregator site pointed to an article from the investing website Motley Fool that asks, “Could Investing $15,000 in Lucid Stock Make You a Millionaire?” The article, though, isn’t as bullish as the headline. Making $1 million in Lucid stock would require a jump of some 67 times from recent levels, giving Lucid a market capitalization, assuming no new shares issued, of roughly $400 billion.
Tesla
in recent trading had a market cap of about $600 billion.
The rest of the article details a history of missed production and sales estimates and the likelihood of stock dilution. Lucid produced 8,428 vehicles in 2023, after reducing guidance a few times during the year; at the start of 2023, Wall Street had expected to produce 20,000 to 23,000 units that year. For 2024, Wall Street projects sales of about 10,000 units. Back in 2021, when Lucid was raising money and going public through a merger with a special-purpose acquisition company, the company said it expected to sell about 90,000 units in 2024. Even the Fool concluded that “Even over a long period of time” the $15,000 to $1 million trade is very unlikely.
Investors tempted to play Lucid stock should remember that Monday’s gains are trading gains and not investing profits. Also, investors buying Lucid shares after Monday’s big rise are likely buying those shares from people thrilled to be exiting their positions at these higher prices.
Barron’s wrote negatively about Lucid stock in November 2022. Barron’s tracks picks and pans for a year after the articles appear. The negative article appeared Lucid shares were trading north of $11 apiece. They closed a year later at about $4.40 a share, off some 60%.
Barron’s didn’t renew the negative call or choose to recommend shares since then. For now, all we advise is caution. Investors looking for quick gains in low-pried, beaten-down stocks should remember the poker principle.
If you can’t identify the sucker at the table the sucker might be you.
Write to Al Root at allen.root@dowjones.com
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