Gores Metropoulos Is a Cautious Buy Before the Luminar Deal Closes

Gores Metropoulos (NASDAQ:GMHI) stock is the latest autonomous vehicle (AV) play widely available for investors. The SPAC (blank-check company) will soon close on its deal to acquire Luminar. As the shift to AVs accelerate, this company, a maker of lidar sensors that make self-driving possible, could see tremendous growth over the next decade.

GMHI stock
Source: JHVEPhoto / Shutterstock.com

Yet, despite these prospects, GMHI stock has sold off in recent weeks. After rallying as high as 37% over its $10 per share offering price, the stock today trades around $10.50 per share.

Yet, you can chalk up much of this decline to the overall sell-off in SPAC stocks on news of increased regulations. This factor does little to change the company’s underlying growth story. Sure, it’s going to take years for things to play out.

But, given how quickly the company has expanded in less than two years, continued rapid growth seems possible. And with the pullback giving investors a more favorable entry point, now may be the time to take a small, long-term position.

GMHI Stock, AVs, and Lidar Technology

So what’s the story with this SPAC’s acquisition target? Luminar is one of several names providing Lidar technology to the automotive industry.

What is Lidar technology? Lidar short for light detection and ranging, is basically laser radar. It’s the sensors and software that allow self-driving cars to safely operate. Most companies developing self-driving cars are going with Lidar-based systems. The major exception? Tesla (NASDAQ:TSLA), which prefers camera-based systems.

But, despite Elon Musk bucking the trend, chances are lidar becomes the norm for AVs. Currently, lidar systems are not cost-effective for widespread use. But, with this company and its rivals working to bring costs down, that could quickly change in a matter of years.

And what’s the long-term potential for Luminar, and in turn, GMHI stock? As InvestorPlace’s Mark Hake broke it down Oct. 14, this company could be a $5 billion business by 2030. Granted, the company’s pro-forma valuation (around $3.6 billion) prices in much of this upside. But, there’s plenty of reason why this emerging auto tech name meet (or exceed) investor expectations.

Luminar already has a major partnership deal with Volvo (OTCMKTS:VLVLY). Other potentially lucrative deals could be in the cards. Yet, it’s not all a slam-dunk. With a major competitor already dominating the lidar space, this upstart could have its work cut out for it.

Luminar vs. Velodyne

As it brings the costs of its lidar sensors down, Luminar has a shot at capturing a large share of this fast-growing market. But, as this industry grows, the competition could get intense. It doesn’t help there’s already an established rival, Velodyne Lidar (NASDAQ:VLDR), “crushing it” in this space.

In fact, it’s currently the lidar industry leader. Yet, this dominance may not last for long. If Luminar can beat this large rival on cost, it could quickly climb to the top of the heap.

Currently, lidar costs are as high as $75,000 per unit. But, this company could eventually bring the cost down to $1,000 a unit.

However, Velodyne is working to bring costs down as well. And, with its first mover advantage, what’s to say it doesn’t continue to dominate? Given that company’s market capitalization (around $3 billion) is below the pro forma valuation for GMHI stock post-Luminar deal, VLDR stock appears at first glance the better risk/return proposition.

Yet, focusing too much on near-term performance may be missing the forest for the trees. Luminar may be one-third the size of Velodyne. But, it’s achieved that level of sales in under two years. With the partnerships with Volvo and scores of other automakers, it’s easy to see the tables quickly turn.

Also, it may not wind up a “winner-take-all scenario.” Small long-term positions in both names could be worthwhile, especially given VLDR stock has recently sold off as well.

It’s High-Risk, High Return

There’s no guarantee Luminar will live up to its ambitious 2030 revenue goal. But, with its success bringing down lidar costs, as well as inking a major commercial partnership, this AV technology upstart has as much of a shot as its larger rival (Velodyne) in winning big as the self-driving megatrend plays out.

So, should you buy GMHI stock while the deal is still pending? I don’t see why not. Granted, it’s no “bet the ranch” scenario. This is a high-risk/high-return type of opportunity. It may be years until it pays off for investors. In the meantime, shares could see high volatility, as Luminar tries to scale into a $5 billion business.

Yet, after the recent sell-off in this SPAC’s shares, a small position in GMHI stock may be worthwhile. Just don’t go hog wild.

On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.

Thomas Niel, contributor to InvestorPlace, has written single stock analysis since 2016.


Article printed from InvestorPlace Media, https://investorplace.com/2020/10/gmhi-stock-cautious-buy-luminar-deal/.

©2020 InvestorPlace Media, LLC