LAZR – LAZR Stock: High Potential of Innovation but Valuation Is Too High

Luminar Technologies (NASDAQ:LAZR) is another stock that went public in December 2020 in this SPAC trend. Is the future of transportation autonomous driving? And does this make LAZR stock a buy?

A finger hovering over an "autonomous drive" button.

Source: Olivier Le Moal / Shutterstock.com

The vision of Luminar is too bold. “Luminar’s vision is to make autonomous transportation safe and ubiquitous.”

About safe transportation, I have no objection, but about ubiquitous I have a lot of concerns. Read on for my investment thesis.

LAZR Stock: Back to the Future

The lidar sensing technology of Luminar Technologies is planned to equip some large car manufacturers’ models shortly. The main argument against LAZR stock now is the wide business and commercial adoption of its technology.

For pure enthusiasm drivers, the concept of autonomous driving is instant disapproval because it eliminates the pleasure of driving. I happen to be one of these car enthusiasts and I wrote an article back in early 2000 about the adoption of technology in cars. The main idea was that technology can be a great support for safety and avoid numerous car accidents, but if it minimizes, or even worse, eliminates the driving pleasure, then its value gets downgraded significantly.

Would all the enthusiast drivers pay extra to get this lidar-sensing technology and have semi-autonomous or fully autonomous vehicles fitted to their new car? I would not. If I want to get transferred somewhere without driving I can get a taxi or use public transportation. But turn my car into an autonomous vehicle?

The feeling and idea do not excite me, and I assume the majority of car enthusiasts too. The preferences of consumers can make an idea of success or a failure. About autonomous driving technology, the emotion attached to it is either love or hate it.

Regulation Is a Key Risk

What will the future bring for fully autonomous vehicles and their widespread deployment? The regulation and legal environment now are rather obscure. There are many risks related to traffic enforcement, licensing, and most insurance and registration for autonomous vehicles. The wide adoption of autonomous vehicles may take many years and even decades.

What are the insurance claims if an autonomous car engages in a car accident? Is it the fault of the car? Or is the driver responsible? Let’s also mention the fact that the condition of public roads is not the same in many countries, which may mean that an autonomous car in the U.S. may perform well, but in some other countries may not.

The Future of Autonomous Driving

A report by Grand View Research mentions considerable growth for the global autonomous vehicle market:

The global autonomous vehicle market demand is estimated to be at approximately 6.7 thousand units in 2020 and is anticipated to expand at a CAGR of 63.1% from 2021 to 2030. Self-driving cars, also known as autonomous vehicles (AV), are a key innovation in the automotive industry. They have high growth potential and are acting as a catalyst in the technological developments of automobiles.

But a trivial question for the success of the Luminar Technologies stock will be the cost of its autonomous driving technology. If priced too high it could harm sales. If priced too low it could harm profit margins.

Partnerships Promising, Valuation Too High

The company has signed partnerships with major automotive makers such as Daimler (OTCMKTS:DDAIF) and Volvo (OTCMKTS:VLVLY). This is good news. What about bad news?

When you visit the financials section on the Luminar Technologies website and try to read the quarterly and annual reports you get the message “coming soon.” Does the stock deserve a market capitalization of about $11 billion?

The only fundamentals about the stock I could get was an article in the Wall Street Journal mentioning that “Luminar remains unprofitable. It lost $94.7 million in 2019, following a loss of $79.6 million the year before. Last year, Luminar’s revenue was $12.6 million, up from $11.7 million in 2018.”

For me, valuation is a key financial metric. Although I do not yet know the sales for 2020, looking at the sales for 2018 and 2019, and the profitability, which is negative, the recent market capitalization of the stock is irrationally high.

LAZR stock is a speculative bet on the future of autonomous driving and transportation. I would stay away from the stock now as its valuation is too high. I would like to see sales growth and positive free cash flows.

Can Luminar Technologies change the way we drive in the future? I have serious doubts, so investors should wait and see actual financials, rather than optimistic projections by the company.

On the date of publication, Stavros Georgiadis, CFA, did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Continue Reading...