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.

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.