Wait for the Dip Before Buying More Luminar Technologies Stock

Luminar Technologies (NASDAQ:LAZR) stock is on fire after a 200%-plus three-month return. With several recent deals in the lidar industry and the general enthusiasm surrounding the EV industry, it’s no surprise that names like LAZR stock and Velodyne Lidar (NASDAQ:VLDR) are trading northward.

Luminar (LAZR) sign with greenery around it
Source: JHVEPhoto/shutterstock.com

LAZR stock, in particular, is doing exceptionally since going public through a “reverse merger” with special purpose acquisition company (SPAC) Gores Metropoulos. At closing, the combined entity had an equity value of $3.4 billion and an implied enterprise value of almost $2.9 billion. LAZR stock’s three-month surge handily outpaced the S&P 500 Index and the Dow Jones Industrial Average.

The company specializes in lidar, which is light detection and ranging technology, sensors and other components that will make autonomous driving more viable. Lidar uses a laser to sense and measure distances. It’s not the only company out there manufacturing these types of sensors. Velodyne is the industry leader. And we also have Collective Growth (NASDAQ:CGRO), which has had a similar journey as Luminar.

All of these lidar stocks are doing exceptionally well because of the promising technology at the heart of these companies.

Luminar plans to bring the prices of its sensors down under $1,000. In comparison, the highest-end automotive lidar systems manufactured by Velodyne cost $75,000. That makes LAZR stock an exciting opportunity for anyone looking to play the space. However, shares need to cool down before you would want to buy in as they are trading at steep multiples.

LAZR Stock Is a Curveball Way To Invest in the EV Space

Last year saw an interesting trend emerge. Several EV startups merged with SPACs and made their debuts to massive gains. Demand for EVs is skyrocketing, and climate change is front and center of the national debate in several countries. Both SPACs and EVs are becoming symbiotic for this very reason. The management team of SPACs has 18 to 24 months to identify a target and complete the acquisition.

So, an EV is probably your best bet in the current environment when looking for a target. However, there is an element of risk involved in the process. The traditional IPO process emphasizes audited financial statements versus the SPAC process, which emphasizes forecasted financial data. That is an Achilles heel since you can get burned pretty badly later on, as we saw with the Nikola fiasco.

However, you don’t have to worry about LAZR stock in that respect. Lidar technology is proven. Its sensors accurately detect objects ahead of the car out to 250 meters away. Volvo Cars released a curated dataset called Cirrus containing unique long-range lidar data raw data from Luminar’s sensors. Luminar has a deal with Volvo, a subsidiary of Chinese carmaker Geely Automobile (OTCMKTS:GELYF), to provide lidar units for the company’s cars, with production slated to start in 2022.

Huge Revenue Jump Forecast

The company estimates that it can increase the revenue from $15 million this year to $837 million in 2025. It is estimated that the global lidar market will grow at a CAGR of 24.1% between 2017 and 2024 to reach $5.8 billion  in 2024. If you think about it, 14.4% in an industry with a few players is not that mind-boggling.

As I have mentioned, the company has ambitious plans to make sure its product is cost-effective. In 2019, total car sales in the U.S. came in roughly 17 million. A thousand bucks hacked onto the cost of a car doesn’t seem out of the question. Considering all this, I believe that projections are a bit conservative at this stage.

Chart shows the price performance of Luminar Technologies (NASDAQ:LAZR) stock against the other Lidar stocks in the space
Click to Enlarge
Source: Chart courtesy of StockRover.com

That is one of the main reasons that shares are trading so hot at the moment. Investors are pricing in this massive growth before returns have been materialized. LAZR stock trades at 814.81 times forward price-to-sales. VLDR stock isn’t far behind, trading at 41.86X. But it still seems reasonable, considering it’s a well-established leader in the space.

Chart shows the revenue estimates and forward price-to-sales for Luminar
Click to Enlarge
Source: Chart by Faizan Farooque, data from S&P Global Market Intelligence

Buying the company when it has an $11.51 billion valuation seems plain wrong. LAZR isn’t expected to hit close to a billion dollars in revenue until 2027.

Hence, the bottom line is that I would wait for the stock to cool off before you invest. At the moment there is a huge disparity between the fundamentals of the business and its valuation.

On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.


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