So far, it’s been a roller coaster ride for investors in Luminar Technologies (NASDAQ:LAZR) and LAZR stock. Formerly known as Gores Metropoulos, the SPAC (special purpose acquistion company) took on the name of its recent acquistion, a major player in lidar technology, after the two merged back on Dec 2.
In anticipation of the deal, shares nearly doubled. But, after skyrocketing shortly after the closing, shares pulled back in a big way by mid-December. However, with recent news out of Apple (NASDAQ:APPL), investors have jumped back in. With a vengeance.
What’s so major about the Apple news? The big tech giant is reportedly planning to have an electric car in production by 2024. How does this benefit Luminar? Apple is looking for outside partners to provide the lidar self-driving technology.
Sure, rivals like Velodyne Lidar (NASDAQ:VLDR), may beat out Luminar for this partnership. But, given the factors already in Luminar’s corner, a potential deal with Apple is icing on the cake. However, while there’s big opportunity here, there’s one thing to keep in mind.
With a possible lidar bubble emerging, now’s not the time to dive in. Valuation has gotten to unsustainable levels. If you already own it, it may be time to sell into strength. And, if you don’t? Hold off for now.
LAZR Stock, the Lidar Megatrend, and What’s Next
As the lidar industry takes off, prospects look bright for Luminar. What is lidar? Lidar is short for light detection and ranging. You could also call it laser radar. In a nutshell, it’s the technology (sensors, radar) that helps facilitate self-driving capabilities in vehicles.
Lidar isn’t the only option for those looking to build autonomous cars and trucks. For example, Tesla (NASDAQ:TSLA) prefers Computer Vision, which utilizes cameras and AI rather than sensors. However, by-and-large the automotive industry is focused on lidar-based self-driving.
As the development of self-driving cars continues to accelerate, that means big growth potential for Luminar. According to its website, the company is already working with more than 50 commercial partners. These include major automakers like Toyota (NYSE:TM) and Volvo (OTCMKTS:VOLVY). Analyst estimates call for sales to surge from $15.2 million this year, to more than $2.7 billion by 2029.
However, while there’s clearly a growth story here, it’s debatable whether LAZR stock has additional runway from here in the near term. Why? With shares trading at an unsustainable valuation, and recent price action largely due to speculation, not a big change in fundamentals, risk/return right now isn’t much in your favor.
Bubble Risk Means Stay Away for Now
With the recent Apple rumors, the EV bubble could cool further. But, a new bubble in lidar stocks could be emerging. Based on how EV and lidar stocks performed on the news, investors may be cashing out of EV plays like Tesla, and buying into lidar plays like Luminar and its main publicly-traded rival, Velodyne.
Yet, both stocks could be getting ahead of themselves. After the recent rally, valuations for either one look unsustainable. Priced as if potential growth years down the road is a certainty, those buying today could see big losses if results fall short of expectations.
Both lidar names may be extremely overvalued. But, as InvestorPlace’s Mark Hake discussed Dec. 23, the valuation issue with LAZR stock is much worse. Why? Even compared to VLDR stock, this stock’s valuation is irrational.
Why? Luminar has far fewer current sales than Velodyne ($15.2 million versus $101 million). But, it sports a much higher market capitalization ($12.1 billion versus $4.6 billion).
Sure, given how investors remained largely in the “growth at any price” camp, this may not be an issue in the near term. With the risk shares could get more irrationally priced, it’s not wise to go short either Luminar or Velodyne.
But, this alone doesn’t make the bull case for LAZR stock. Given its dependence on market euphoria, not its fundamentals, to head even higher, buying this today is more like gambling than sound investing.
Bottom Line: Sell into Strength With Luminar
If results live-up to estimates, this company could scale into a multi-billion dollar business by 2029. The issue? Shares trade as if that’s already happened. AV trends may be on it side. But, not to the levels currently priced into shares.
That being said, the lidar bubble may have room to run. With not just automakers, but retailers like Wal-Mart (NYSE:WMT) also expanding heavily into AVs, Luminar’s long-term potential could be greater than current estimates forecast.
So, what’s the play, as this former SPAC’s shares trade well above their offering price? If you bought in ahead of the deal, it’s time to sell into strength with LAZR stock. This may be an opportunity at lower prices. But, at today’s valuation, it’s not a great risk/return proposition.
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, a contributor to InvestorPlace, has written single stock analysis since 2016.
