Luminar Technologies (LAZR +13.55%), a developer of commercial automotive lidars, went public by merging with a special purpose acquisition company (SPAC) four years ago. The combined company's shares opened at $354.75 on the first day, soared to a record high of $627 just five days later, but now trade at about $6.
Luminar's stock initially skyrocketed as it dazzled investors with its long-term forecasts. The buying frenzy in meme stocks -- which was driven by the pandemic, stimulus checks, commission-free trading platforms, and low rates -- amplified those gains.
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During its pre-merger presentation, Luminar claimed it could grow its revenue from an estimated $15 million in 2020 to $124 million in 2023. But in reality, it only grew its revenue from $14 million in 2020 to $70 million in 2023.
That growth rate was still impressive, but it couldn't support its nosebleed valuations as rising rates drove investors away from speculative stocks. So should investors buy and hold Luminar as a turnaround play at these prices, or should they avoid it?
OTC: LAZR
Key Data Points
What does Luminar Technologies do?
Luminar, which was founded in stealth mode in 2012, develops high-resolution, high-range lidar systems for semi-autonomous and autonomous vehicles. Instead of using off-the-shelf components like many other lidar makers, Luminar manufactures most of its own components, which are customized for its own chips and software.
It emerged from stealth mode in 2017, and it attracted a lot of attention by partnering with Volvo and Volkswagen's Audi in 2018. By 2020, it had partnered with 50 companies, including 12 of the world's 15 top automakers. Those partnerships, along with the expected expansion of the driverless vehicle market, generated a lot of buzz for Luminar's SPAC-backed market debut. But like many other SPAC-backed start-ups, it overpromised and underdelivered.
The reasons to buy and hold Luminar
Luminar's Iris lidar uses infrared light at a 1,550 nanometer wavelength, which is higher than the wavelengths used by most of its competitors. It claims that difference enables it to "see" more objects at a longer range and higher resolutions than its rivals.
Its strong partnerships with Volvo and other automakers support that claim. Its business has also steadily grown even as inflation, rising rates, supply chain constraints, and other macro headwinds throttled the growth of the automotive market.
In 2022, its revenue grew 28% as it ramped up its production of the Iris lidar and exceeded its own target of growing its forward-looking order book by more than 60%. In 2023, its revenue rose 71% even as its biggest near-term catalyst -- Volvo's launch of its EX90 electric SUV -- was pushed back from 2023 to late 2024.
Analysts expect Luminar's revenue to rise less than 1% in 2024, but they anticipate 61% growth in 2025 and 90% growth in 2026 as it ships more lidars for the EX90 and deepens its partnerships with other automakers. Declining interest rates and a warmer macro environment should also light a fire under the autonomous vehicle market again.
With an enterprise value of $763 million, Luminar isn't expensive at 7 times next year's sales. Its insiders were also net buyers of the stock over the past 12 months -- and that warmer insider sentiment suggests brighter days are ahead.
The reasons to sell or avoid Luminar
Luminar established an early mover's advantage in the nascent lidar market, but it faces stiff competition from similar companies like Cepton, Aeva, and Velodyne Lidar. That pressure could squeeze its gross margins and keep it unprofitable for the foreseeable future.
Luminar originally expected its earnings before interest, taxes, depreciation, and amortization (EBITDA) to turn positive in 2024. However, analysts expect it to report a negative EBITDA of $292 million in 2024, and for that figure to stay red through 2026.
Luminar ended its latest quarter with $199 million in cash, cash equivalents, and marketable securities, but it was shouldering $661 million in total liabilities. It's also increased its share count by 54% since its public debut with convertible debt offerings and its stock-based compensation -- even as its stock price plunged about 98%.
In other words, Luminar still hasn't proven its business model is sustainable yet. So if it fails to scale up its business and narrow its losses over the next few years, its stock could drop even further.
Is it time to buy, sell, or hold Luminar?
Luminar is still a highly speculative stock. It was a bad idea to chase it right after its market debut, but it looks like an interesting turnaround play at these levels. It makes more sense to nibble on the stock than to dump it at these prices, but I'd keep an eye on its forthcoming headwinds and tailwinds.
