Lucid Group (LCID) shares are spiraling in Thursday's session after the electric vehicle (EV) maker announced a public offering of nearly 262.5 million shares.
In a filing with the Securities and Exchange Commission (SEC), Lucid said it will sell 262,446,931 shares of its common stock. In addition, Lucid announced that its largest shareholder and an affiliate of the Public Investment Fund (PIF), Ayar Third Investment Company, will buy nearly 375 million shares of LCID stock in a private placement. Following this transaction, Ayar will continue to own nearly 60% of Lucid's outstanding shares.
The EV maker said it will use the proceeds from the public offering and private placement for "general corporate purposes, which may include, among other things, capital expenditures and working capital."
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Why is Lucid stock lower?
Lucid's stock is selling off on the news because when a company announces a stock offering, it often leads to a decline in its share price over concerns of dilution. A stock offering increases the number of shares available in the market and reduces the ownership percentage of existing shareholders. The dilution also negatively impacts a company's earnings per share since there are more shares outstanding.
A stock offering can also cause concern because it shows that the company needs additional capital and is willing to dilute existing shareholders to raise it.
Compounding woes for the EV maker is its Wednesday night warning that it anticipates Q3 operation losses of $765 million to $790 million, more than the $752 million analysts are expecting.
Is LCID stock a buy, sell or hold?
Lucid Group's troubles on and off the price charts have dragged shares further into penny-stock territory throughout the year. As such, Wall Street is on the sidelines when it comes to the consumer discretionary stock.
According to S&P Global Market Intelligence, the average analyst target price for LCID stock is $3.16, which was a discount to the October 16 close at $3.28. Additionally, the consensus recommendation is a Hold.
Financial services firm Stifel is one of those with a Hold rating on LCID stock, but sees a glimmer of hope for the EV maker down the road.
Specifically, Stifel analyst Stephen Gengaro thinks the company's Lucid Air electric car is an "outstanding vehicle" and believes the recently unveiled Gravity SUV will give it access to the lucrative sports utility vehicle segment.
However, he notes that Lucid's "cash burn remains high" and that the company is still in the "prove-it-to-me stage."
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