Just weeks after Luminar Technologies (NASDAQ:LAZR) closed its merger with a SPAC (special purpose acquisition company) called Gores Metropoulos, there is every reason to believe the shares will do well. However, LAZR stock is simply valued too high right now for most investors.
Luminar is an automotive lidar technology maker for autonomous driving and electric vehicles.
For example, since its Dec. 2 merger closing, LAZR stock has increased more than 53% from $18 to $27.62 as of Dec. 18. However, the stock peaked at over $41.80 on Dec. 8, just after the merger closed. Since then, it has dropped more than a third as the glow on the merger has faded.
Luminar Technologies is used by seven of the top 1o global automakers for auto self-driving technology. Lidar sensors use lasers to make 3-D representations of objects.
Moreover, recently Mobileye, an Intel (NASDAQ:INTC) company that specializes in assisted driving technology, clarified details of a deal they announced on Nov. 20, 2020. This followed nearly two years of working together at the development stage.
LAZR Stock Valuation Issues
Nevertheless, LAZR stock trades for 588 times its forecast revenue of $15.2 million in 2020. Even for 2021, when revenues are forecast at $25.75 million, the stock is at 348 times revenue. That’s revenue, not earnings.
This number would too high even for a price-to-earnings (P/E) ratio. So at this level for price-to-sales, the valuation is simply out-of-control.
For example, Luminar Technologies has a market capitalization of almost $9 billion. That compares with forecast sales of just $25.75 million in 2021. Moreover, if we compare this with a similar company, Velodyne Lidar (NASDAQ:VLDR), the LAZR stock valuation seems absurd.
Here is why. VLDR stock has a market cap of just $3.39 billion, which is less than half of LAZR stock. But Velodyne Lidar will make $101 million in revenue this year. Compare that to Luminar’s $15.2 revenue forecast.
Moreover, in 2021, Velodyne will make $151 million in 2021. That is almost six times as high as Luminar’s forecast of $25.75 million.
Therefore, either VLDR stock is way too cheap or LAZR stock is overvalued. I suspect the latter, especially since both companies are growing their revenues quickly.
This implies that Luminar must fall at least 50% to 75% before LAZR stock will begin to have a reasonable valuation.
This is similar to what Citron Research recently tweeted about LAZR stock. They implied that the stock would fall to $20. That would be a further drop of $7.62 per share or 28% in Luminar’s price.
The Jury On Lidar Is Still Out
It might surprise you to know that Tesla (NASDAQ:TSLA), the preeminent electric vehicle (EV) and autonomous driving company, does not use Lidar. Lidar, which stands for “light detection and radar,” uses a laser to detect distance by measuring the laser light reflected off of objects.
Elon Musk says it is too expensive and unnecessary. Tesla’s EVs rely on cameras and other detection technology such as radar, GPS, maps and ultrasonic technology.
He said that lidar technology is a “crutch” and cameras will allow their cars to see through even adverse weather situations.
Investors in LAZR stock should take this into consideration. Tesla is a major player. Any avoidance of lidar technology could be deleterious for LAZR stock. That could happen if other companies follow Tesla’s lead in avoiding lidar technology.
What To Do With LAZR Stock
There really is only one thing most investors can do with LAZR stock. Avoid it. It is simply too expensive. The best thing would be to wait until there is at least some form of bargain element at a lower price.
The same is true for investors already in the stock. You face a choice of either average cost buying it at a lower price or selling it now. I recommend the latter. The reason is you can always buy more shares at a lower price if you think it is a worthwhile investment.
On the date of publication, Mark R. Hake held a long position in Tesla stock.
Mark Hake runs the Total Yield Value Guide which you can review here.
