Perhaps one of the most interesting dynamics in the market right now is found in shares of Luminar Technologies (NASDAQ:LAZR). As a specialist in lidar (light detection and ranging), LAZR stock represents a direct investment in the push for fully automated transportation. Yet at the same time, Luminar doesn’t function within a bubble. As the technology-centric Nasdaq Composite Index took a hit, so too did LAZR.
Now, the pivotal question — is LAZR stock a compelling buy or should proponents wait for an even juicier discount? While down 31% from a mid-February high, some justification for caution exists. As great of a company as Luminar may be, it’s extremely difficult to stem a panicked rush for the exits.
At the same time, there’s a case to be made for taking a chance at this cheapened rate. Primarily, the future is rapidly shifting toward full autonomy. That has attracted both direct competitors in the space, along with electric vehicle firms like Tesla (NASDAQ:TSLA) developing their own solutions. But as our own Matt McCall notes, Luminar is well prepared for the competitive onslaught, writing:
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.
If McCall knows anything, it’s technology. In my view, this is a ringing endorsement of LAZR stock. This implies that you should follow suit but there may be more to this story.
Engage LAZR Stock with a Rational Mindset
Whenever hot commodities like LAZR stock hits the market, it’s easy to get swept up by the hype train. Don’t misread this — I’m not suggesting that Luminar is a fly-by-night operation, not by a long shot. Rather, I’m pointing out that mass psychology can be a wonderful catalyst — or a weapon if you’re on the wrong side of it.
As virtually every analyst has stated, driverless transportation is the future. Once this technology is in place, we can maximize not only human potential (imagine how much more efficient traffic will be) but make society safer as well. Heck, we might even do away with auto insurance.
Thus, the future is not in question. What is up for debate, though, is when that future arrives. Also, who will facilitate that future? Those are two questions that directly affects LAZR stock.
Before you label me as a negative Nancy, keep in mind that experts in the autonomy field believe that we’re currently somewhere between levels 2 and 3 of autonomy; that is, somewhere between partial autonomy (driver assistance) and conditional autonomy (temporary self-driving under certain situations).
We’re many years away from level 4, which represents high automation where a car can take full control of a vehicle under the right conditions. And then, experts believe we’re decades away from full autonomy, where not even a steering wheel is part of the equation.
The actual engineers of autonomous technologies believe that the public is under delusions of grandeur when it comes to how quickly we can reach full autonomy. They see the encouraging test results. What they don’t recognize, though, is the holistic upgrading that full autonomy will depend on.
To accommodate driverless technologies, the vehicles themselves will need to be integrated with the transportation infrastructure — cars will need to communicate with each other and traffic signs and updates will need to be “visible” to autonomous systems, whether that be lidar or optics based.
In other words, there are multiple variables involved, with LAZR stock being one component of the broader equation.
It All Depends on Your Timeframe
Ultimately, I believe an investment in Luminar depends on your horizon: How long do you plan on holding LAZR stock?
If you’re just starting out and you’re looking at holding for 10 to 20 years, this might be a good time to secure a position. As McCall wrote, “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.”
Put another way, this is a bullish narrative that potentially is riding an incredibly long upside pathway. A decade from now, it’s possible that people will be kicking themselves for not picking up shares today.
Therefore, the opportunity is there. Just be aware that the longer the time period, the more stuff can go wrong.
On the date of publication, Josh Enomoto held a short position on TSLA.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.