Is Luminar Stock Too Risky At $34?

by Trefis Team
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Luminar Technologies (NASDAQ: LAZR), a company that specializes in lidar technology that helps self-driving vehicles detect their surroundings, went public in December and now trades at about $34 per share, almost 3.5x its offer price. The company has a market cap of close to $11 billion, trading at about 400x consensus 2021 revenue. Is the stock too risky at current levels? We think it is. Although lidar is seeing surging interest, driven partly by the big electric vehicle stock rally and an increasing commitment from legacy automakers to electrification and self-driving, we think investors should tread with caution with Luminar stock for a couple of reasons.

Now while Luminar’s technology appears well suited for mass-market self-driving cars, competition is also rising. Velodyne Lidar (NASDAQ: VLDR), a company that has thus far focused on high-performance, high-cost lidar sensors, has developed a new mass-market sensor that it says can be produced for as little as $500. Even Intel subsidiary MobileEye, which is currently a customer of Luminar, is looking to make its own lidar sensors by 2025.  It is also going to be a while before Luminar starts generating meaningful revenue. The company is projecting revenue of just $35 million in 2022 with the number rising to over $800 million by 2025. Given the growing competition and the company’s lack of a mass manufacturing track record, there is a lot of uncertainty.

Additionally, Luminar’s lofty valuation is supported by the fact that its stock is one of the few pure-play options available to investors in the self-driving market. However, there are a couple of other lidar players that are likely to go public this year and this could give investors more investment options, potentially reducing demand for Luminar stock. For example, Innoviz Technologies, an Israel-based lidar company is likely to go public sometime in Q1 this year via a SPAC merger, while other lidar players AEye and Aeva are also likely to go public shortly taking a similar route.

See our dashboard analysis Velodyne Vs. Luminar: Which Lidar Stock Should You Pick? for an overview of the two companies’ valuation and fundamental performance in recent years.

[1/27/2021] What’s Happening With Luminar Stock?

Luminar Technologies (NASDAQ: LAZR), a company that specializes in lidar technology used in self-driving vehicles, has seen its stock rally by about 15% since early January. While there hasn’t been too much news specific to the company in recent weeks, the electric vehicle (EV) industry, which is leading the self-driving revolution, has seen a lot of buzz.  For instance, there is increasing enthusiasm surrounding legacy automaker General Motors’ (NYSE:GM) EV plans, as the company formed a new business unit to sell electric vans and also saw Microsoft make an investment into Cruise, its autonomous-car division. Separately, Chinese e-commerce titan Alibaba unveiled an electric sedan under a new brand in collaboration with state-owned SAIC Motor. Apple is also rumored to be developing its own electric car, and there have been reports that it held meetings with EV startup Canoo (NASDAQ: GOEV) in this regard. Although none of these developments directly impact Luminar, the company is seen as a technology leader for lidar in mass-market vehicles and does stand to benefit as EVs and self-driving vehicles continue to gain traction. The stock also remains one of the few pure-play options in the self-driving market. See our analysis below of how Luminar compares to Velodyne, a company that has focused on lidar for lower volume applications.

[12/28/2020] Velodyne vs. Luminar: Which Is The Better Lidar Stock?

Velodyne Lidar (NASDAQ: VLDR) and Luminar Technologies (NASDAQ: LAZR), two companies that specialize in lidar technology, went public this year. Lidar – a laser-based technology, which essentially helps computers detect surrounding objects – is poised to grow meaningfully, driven by the broader adoption of self-driving cars, helping both companies. However, the two stocks are valued rather differently. While Luminar’s market cap stands at roughly $10 billion, trading at over 350x projected 2021 revenue, Velodyne – which is actually the more established player in the lidar market – is valued at under $4 billion, or a P/S multiple of about 25x. Let’s take a look at the two companies’ businesses to understand what’s driving the disparity in their valuation and which could be the better pick.

See our dashboard analysis Velodyne Vs. Luminar: Which Lidar Stock Should You Pick? for an overview of the two companies’ valuation and fundamental performance in recent years.

Luminar’s Tech Hits The Sweetspot For Mass Market

Velodyne has largely focused on high-performance, high-cost lidar sensors. The company’s sensors (such as the 360-degree units that are placed on a vehicle roof) are typically used in prototype self-driving cars and other relatively lower volume applications such as research and development. Based on cumulative shipments and revenue data from the company’s form S-1, its sensors cost an average of $14k per unit. The company posted revenues of over $100 million in 2019, down from about $142 million in 2018, due to lower average selling prices and a larger mix of lower price sensors sold.

Luminar, on the other hand, is focused on building sensors that can be used in mass-market vehicles. The company’s sensors are expected to hit the sweet spot for automakers, costing under $1,000 per unit while offering very strong performance relative to their price. For example, Luminar claims its lidar has an industry-leading viewing range of 250 meters. The company is focusing on signing large long-term deals, noting that it has partnered with 50 companies, including 7 of the top 10 global auto players. Volvo’s next-gen electric vehicle, estimated to launch in 2022, will likely be the first consumer vehicle to use Luminar’s high-performance lidar system.

What Are The Risks?

While Luminar’s differentiated technology and promise of low costs are encouraging, there are risks. The company has yet to begin volume production and there could be challenges as it scales up. For perspective, Luminar noted that it expects to sell just 100 lidar sensors in 2020 and the consensus Revenues estimates for the company stand at just about $15 million this year. Separately, Velodyne also appears to be eyeing Luminar’s turf with new sensors that are cheap enough for the mass market. The company recently unveiled a new sensor called H800, which can see up to 200 meters and can apparently be mass-produced for as little as $500. Luminar’s high valuation, the increasing competition, and potential challenges surrounding its production ramp could make its stock the riskier bet at this point, although its upside could also be higher.

While Luminar stock looks pricey, 2020 has also created many pricing discontinuities that can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Adobe vs. Corcept Therapeutics shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

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