The growth sector meltdown at the hands of the spiking Treasury yields has left many high-quality growth stocks languishing in significantly undervalued territory. One such stock is self-driving technology company Luminar (NASDAQ:LAZR). Not too long ago, LAZR stock was trading hands around $50. Today, shares trade below $30.
According to our numbers, Luminar stock is significantly undervalued today.
This a company with a breakthrough technology (its Iris LiDAR sensors) that will enable a new ear of self-driving cars over the next decade. Indeed, by 2030, we believe that millions of cars will outfitted with Luminar sensors. The growth potential here is enormous.
Relative to that potential, LAZR stock today is very undervalued.
That’s important to note today, because after the bell, Luminar is set to report fourth-quarter earnings. We believe those earnings will be very solid, and that management will deliver some bullish commercial development updates as well as hike 2021 guidance. If so, Luminar’s earnings report could be the exact catalyst that Luminar needs to shake off its recent sluggishness and sprint back to $50.
Here’s a deeper look.
LAZR Stock: The Leader in LiDAR Technology
The long-term bull thesis on Luminar stock is very simple.
Technology has advanced to a point of making self-driving cars a widespread reality very soon. Not fully autonomous vehicles. But semi-autonomous vehicles that will drive themselves yet still require some degree of human oversight.
The biggest technological breakthrough here is in perception, or the creation of advanced sensors that enable cars to “see” and respond to their environments. In the automotive sensor world, laser-based LiDAR sensors have proven to be most effective — and in the LiDAR world, Luminar is king.
The company has not just made the industry’s highest-performing LiDAR sensors with best-in-class resolution, range, and durability, but also figured out a way to make those industry-leading LiDAR sensors at industry-low costs. So, in effect, Luminar is simultaneously the performance- and cost-leader in LiDAR.
That’s why the company has secured partnerships with some of the biggest names in the automotive world, including Volkswagen, Volvo, and Toyota. Our understanding of the technology here is that Luminar’s cost and performance advantages are durable, and therefore, we see Luminar sustaining its early leadership position in the LiDAR market for the foreseeable.
Long-term, Luminar’s LiDAR sensors will become commonplace on semi-autonomous cars across the world. In that future, Luminar is worth a whole lot more than its current $27 stock price implies.
Luminar Stock Is Significantly Undervalued
We view our modeling on Luminar as conservative. Yet, it still produces a fair 2021 price target for Luminar shares of about $50.
By 2030, we think most — if not all — cars on the road will have some form of autonomous capability, even if just low-level autonomy. Of all those partially autonomous vehicles, we think about 5% of them will be outfitted with Luminar sensors, at around two sensors per car, and an average price of $1,000. Those assumptions lead to us modeling for $5.6 billion in revenue for Luminar by 2030.
Based on management targets and economies of scale inherent in manufacturing LiDAR, we see EBITDA margins scaling towards 50% over time, and net profits clocking in around $2.2 billion by 2030 (or about $6.50 per share).
Based on a 17X forward earnings multiple and a 10% annual discount rate, that implies a 2021 price target for LAZR of about $50.
That means Luminar stock today is significantly undervalued relative to the company’s long-term profit growth potential.
Strong Earnings After the Bell?
Undervalued stocks don’t just all the sudden “wake up” and become fairly valued. They need a catalyst to wake them up. An alarm clock, if you will.
That alarm clock for LAZR could be the company’s fourth quarter earnings report due after the bell today.
Luminar’s business momentum has been healthy lately. The company just secured a partnership to supply LiDAR sensors to China’s largest automotive manufacturer, SAIC. Technological progress has been strong, too. Luminar recently partnered with Volvo to launch a full-stack self-driving tech stack inclusive of LiDAR sensors, perception software, and planning software. The company continues to attract top-notch talent, having just added a former Facebook exec and MIT professor to its board.
Given these favorable developments, we suspect that Luminar’s fourth quarter earnings report will be chalk full of positive updates, bullish commentary, and constructive 2021 guidance.
In sum, those developments could light a fire under Luminar’s stock and reinvigorate the rally.
Bottom Line on LAZR Stock
Luminar stock is one of my favorite growth stocks to buy for the long-term.
But it’s not the best growth stock to buy today.
Instead, the best growth stock to buy today is a company that reminds me of a young Amazon (NASDAQ:AMZN). Indeed, I think buying this stock today could be like buying AMZN stock back in 1997 — before it soared thousands of percent.
Which stock am I talking about?
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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