After the recent correction, many promising opportunities have fallen to “can’t miss” prices. That includes autonomous vehicle (AV) play Luminar (NASDAQ:LAZR). Falling from over $37 per share to prices as low as $21.70 per share, the former special purpose acquisition company (SPAC) has since started a partial recovery. But, while LAZR stock has rebounded more than 20% since Mar. 8, shares are still “can’t miss” at today’s prices of around $27.
How so? This remains one of the best long-term plays out there on the future of AVs. If this megatrend plays out, it’s companies like Luminar that stand to gain the most. LAZR has all the ingredients in place. Based on projections going into the next decade, it’s easy to see this stock eventually trade for many times what it changes hands for today.
Sure, that’s far from guaranteed. It’s still debatable how fast AVs will gain critical mass. But, no matter how quickly (or to what extent) self-driving cars proliferate, the potential long-term upside vastly exceeds the risk. Short-term, we may see some volatility. However, in the coming years, today’s prices may look like a fantastic entry point in hindsight.
What Makes LAZR Stock One of the Best AV Plays
Why is Luminar one of the best ways to play the self-driving trend? Sure, many electric vehicle (EV) stocks are indirect plays on the future of autonomous driving. But, if you want direct exposure, you need to buy pure-play lidar stocks.
What’s lidar? “Lidar” is short for light detection and ranging. It’s not the only technological option out there to facilitate self-driving. Other automakers are pursuing alternative systems. However, with most going with lidar, it’s set to become the standard.
That’s good news, of course, for LAZR stock — even if it’s far from being the only up-and-coming name in this space. So, with the competition heating up, what’s going to give Luminar an edge?
Technology. That is to say, proprietary technology. Instead of farming out the development of components to third parties, the company has built its system completely in-house. As I said previously, there are many advantages to this approach. Not only does it enable the company to differentiate itself, but it also provides opportunity for higher profit margins once Luminar scales up. Instead of sending significant sums out the door in the form of licensing fees, LAZR is going to soak up a greater share of the upside.
Plus, in terms of quality, few AV names can hold a candle to Luminar. That’s part of why investors have assigned it a nearly $8.8 billion market capitalization, even though the company is yet to generate meaningful revenues. Shares may look expensive now. However, if things play out as projected, nearly $30 per share is going to look more than reasonable.
A Reasonable Pathway to Triple-Digit Gains
LAZR stock may look pricey at its current valuation. In the past twelve months, it’s generated just $17.3 million in sales. The company is also set to remain in its early stages this year as well, with projected sales for 2021 coming in at $27.7 million. But this isn’t a stock you can value using traditional metrics.
As is the case with most auto-tech plays, it’s not current results that matter. Instead, it’s what results could reasonably be five to 10 years down the road. Previously, I argued that Luminar could be worth at least $50 billion one day, if all goes right. I based this number on the possible total addressable market ($150 billion) for lidar technology (per numbers provided in the company’s August 2020 investor presentation).
Now, $150 billion in annual sales for the industry remains many years away. About nine years (2030), to be exact. But, it’s not as if LAZR stock will trade sideways before all of a sudden making a drastic upward move. If revenue growth happens as expected, with sales surging from the low numbers we see today, valuation will move up in-line with this tremendous growth.
Again, big gains may not occur in the short-term. Yet, while price action may be volatile in the next year, subsequent years could see LAZR stock make significant gains.
Bottom Line: As Luminar Rebounds, Now’s the Time to Buy
Luminar may be a play on current trends. Yet, it’s not a short-term trading idea. Like I said above, price action could be volatile near-term. However, as the years progress, we’ll move closer and closer to self-driving vehicles hitting critical mass.
As one of the highest quality lidar companies out there, the rise of AVs could result in big gains for this stock over the long-term. The “story” behind LAZR stock is years in the making. Now’s the time to lock down a position.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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