Velodyne Lidar (NASDAQ:VLDR) continues to have very strong fundamentals and a superb outlook, but VLDR stock has declined tremendously due to relatively unimportant, transitory issues.
As I’ve pointed out previously, unlike many of the pre-revenue tech companies whose stocks have jumped over the last year, Velodyne already has a thriving business. Meanwhile, its shares continue to be much less expensive than another, much smaller maker of lidar devices, Luminar (NASDAQ:LAZR).
Very Strong Fundamentals
In many ways, Velodyne’s fourth-quarter results, reported on Feb. 26, were quite impressive, while the comments it made in conjunction with its earnings report were very positive.
For example, the company’s pipeline of projects jumped to 183 at the end of 2020 versus 131 at the beginning of the year. The company’s CEO, Anand Gopalan, claimed that the lidar maker has the largest pipeline in the sector. And Velodyne signed 26 deals between Jan 1 2020 and Feb. 19, 2021, versus just three contract for all of 2020, CFO Drew Hamer reported.
What’s more, Hamer said that the company believes that it “could have the opportunity for over $1 billion from our signed and awarded projects for the period 2021 through 2025.” while the deals in its pipeline that have not yet been finalized are worth a very impressive $4.4 billion.
Other impressive statistics cited by Gopalan include the fact that the company “shipped a record 4,237 sensor units in the fourth quarter and 11,710 for the full year,” while it “shipped more products in a week than all the other players have reported shipping in a whole year.” Finally, showing the increasing diversity of Velodyne’s business, the CEO stated that its non-automotive pipeline had more than tripled “from 873,000 units in February of 2020 to 1.9 million units” as of Feb. 19, 2021.
Unimportant and Transitory Issues
In what seems to me to be an intelligent strategy, Velodyne decided to lower the prices for its lidar sensors in Q4. By cutting its prices, the company was likely be able to get more initial deals with automakers and others, paving the way for the company’s top and bottom lines to explode higher when lidar sensors become much more widely used.
And indicating that Velodyne’s longer-term, bottom-line outlook remains strong despite the price cuts, the company continues to expect its gross margins to be around 55%-59% in the “long-term.” Yet the price cuts caused Velodyne’s product revenue to fall to $14.4 million last quarter from $18.2 million during the same period a year earlier.
Also hurting the company’s Q4 results were COVID-19 outbreaks at its manufacturing plants late last year. With herd immunity rapidly approaching in many places, the virus should not be a long-term problem for the company.
Finally, on Feb. 22 Velodyne disclosed that it had ousted its chairman and head of marketing, who are married to each other. In the wake of an investigation, the company found that the executives had “failed to operate with respect, honesty, integrity, and candor” when dealing with board members and other executives.
There’s been speculation that, in the wake of the scandal, Velodyne may have to restate its financial results or revise the size of its pipeline downwards. If that was the case, however, I believe that the company would likely have had to disclose the news already, since over a month has passed since its probe concluded. Since no such disclosure has been mnade, I’m not worriued about the issue.
Finally, on March 29 a lockup on the sale of a number of Velodyne’s shares expired, likely causing some weakness in the shares.
The Bottom Line on VLDR Stock
Velodyne is clearly the leader of the rapidly expanding lidar space. Yet VLDR stock has tumbled 54% in the last three months on the transitory issues I described earlier. And it’s now trading at a relatively affordable 2021 price-sales ratio of 24, versus Luminar’s (incredibly high) 2021 P/S ratio of 281 times.
Therefore, I urge investors to buy Velodyne’s shares in the wake of their recent, large, unwarranted pullback.
On the date of publication, Larry Ramer held a long position in Velodyne.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Roku, GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.