Shares of Luminar Technologies (LAZR -1.66%) were rising Thursday as Volvo announced it would be using the start-up's lidar technology on its upcoming electric SUV. Shares were up as much as 12.8% on the news. The stock is up around 7.4% as of 1:17 p.m. EDT.
Luminar Technologies is an early-stage company, so securing contracts with large automakers like Volvo is a big deal for the potential viability of its products. Lidar, which stands for Light Detection and Ranging, uses lasers and pulsing light that enables computers to sense the world around them and create intricate 3D maps. The technology is popular for autonomous-vehicle research, which is why Volvo is partnering with Luminar on this deal.
According to Luminar's press release, its hardware systems will be on Volvo's fully electric successor to the XC90 SUV. This next-generation SUV is supposed to be unveiled sometime in 2022. An unveiling doesn't mean production will happen right away since manufacturing cars is a lengthy process. In other words, the technology might not be hitting city streets for a few years.
While getting these big contracts is important for Luminar's future, investors should remember that this company is still in the very early stages and only had $15 million in revenue over the last twelve months. With a market capitalization of $8 billion after today's jump, the stock has a price-to-sales ratio (P/S) in the triple digits, which implies a lot of future growth is already priced in. Getting a contract from a big manufacturer like Volvo is great progress, but investors should remember that Luminar Technologies is an extremely risky stock at the moment. They should proceed with caution before buying shares in this start-up.