Should one Buy, Sell, or Hang onto Luminar Technologies' Shares?
Luminar Tech (LAZR, -1.25%), a company developing sophisticated lidar tech for self-driving cars, went public through a merger with a SPAC four years ago. On its first day, shares opened at $354.75, skyrocketing to a high of $627 within five days. However, they've since dropped down to roughly $6.
Luminar's shares saw an initial surge due to investors being impressed by its long-term projections. The hype around meme stocks (driven by the pandemic, stimulus checks, zero-commission trading platforms, and low interest rates) further fueled these gains.
Despite its original claims of growing revenue from $15 million in 2020 to $124 million in 2023, Luminar only managed to hit $70 million by 2023. Impressive growth, yes, but it wasn't enough to maintain its lofty valuations as rising interest rates sparked a sell-off in speculative stocks.
So, should investors invest in Luminar as a potential turnaround, or should they steer clear?
What does Luminar Tech do?
Created in secret in 2012, Luminar builds high-resolution, long-range lidar systems for semi-autonomous and autonomous vehicles. Unlike most other lidar manufacturers, Luminar manufactures most of its components in-house and tailors them for its chips and software.
Luminar debuted from the shadows in 2017 and gained traction with partnerships with Volvo and Audi's Volkswagen. By 2020, it had collaborated with 50 companies, including 12 of the world's 15 major automakers. These partnerships, alongside the growing driverless car market, drove excitement for Luminar's SPAC-funded public launch. But much like other SPAC-backed startups, Luminar struggled to meet expectations.
Arguments for buying and holding Luminar
Luminar's Iris lidar uses infrared light at a 1550 nanometer wavelength, giving it an edge over competitors as it can identify objects at longer ranges and with increased resolution. Luminar's partnerships with Volvo and other automakers bear testament to this advantage. Its business has continued to grow, even during a time when the automotive market was negatively impacted by inflation, rising rates, supply chain issues, and other macro challenges.
In 2022, Luminar's revenue increased by 28% as it ramp up its Iris lidar production and exceeded its own target of growing its order book by over 60%. Even with Volvo's EX90 electric SUV launch being delayed from 2023 to late 2024, Luminar's revenue still rose by 71% in 2023. Analysts predict that Luminar's revenue could grow by just 1% in 2024, but robust growth is expected in 2025 (61%) and 2026 (90%) as it continues to supply lidars for the EX90 and expand its collaborations with other automakers. Declining interest rates and a more favorable macro environment should also reinvigorate the self-driving car market.
With an enterprise value of $763 million, Luminar seems reasonably valued at 7 times next year's sales. Moreover, its insiders have been net buyers of the stock over the past 12 months, indicating a positive outlook.
Arguments for selling or avoiding Luminar
Luminar initially cornered the lidar market, but it faces intense competition from companies like Cepton, Aeva, and Velodyne Lidar. This competition could hurt its gross margins and keep it in the red for the foreseeable future.
Luminar initially projected it would turn a profit on its EBITDA in 2024. However, analysts now forecast a negative EBITDA of $292 million in 2024, with this figure remaining negative through 2026.
Luminar ended its latest quarter with $199 million in cash, but it also carries $661 million in total liabilities and has increased its share count by 54% since its launch with convertible debt offerings and stock-based compensation, even as its stock price plummeted by around 98%.
In summary, Luminar hasn't yet proven its business model's sustainability. If it fails to grow and scale its business and reduce losses in the coming years, its stock could continue to fall.
Should you buy, sell, or hold Luminar?
Luminar remains a highly speculative stock. Chasing it right after its IPO was a risky move, but at its current price, it might be worth considering as a turnaround investment. The wise move would be to cautiously invest in the stock, keeping an eye on its upcoming challenges and opportunities.
Investors may find interest in Luminar due to its potential for growth in the field of lidar technology, as indicated by its partnerships with major automakers and impressive revenue growth in 2022. The company's Iris lidar technology, which uses infrared light at a 1550 nanometer wavelength, sets it apart from competitors. According to analyst predictions, robust growth is expected in future years as Luminar continues to supply lidars for upcoming electric vehicles and expands collaborations with other automakers.
In the realm of finance and money management, it's essential to consider the level of risk involved in any investment. Given Luminar's history of struggling to meet expectations and intense competition in the lidar market, potential investors should approach this stock with caution and conduct thorough research before making a financial commitment.
