Luminar Could Own 100% of the Lidar Market — And It May Still Be Overvalued

After months of waiting, special purpose acquisition company “Gores Metropoulous” finally completed its reverse-merger IPO on December 3, turning light detection and ranging (lidar) maker Luminar Technologies (LAZR) into a publicly-traded company. Less than a week later, Luminar stock has more than doubled — and now, Northland Securities has decided it’s time to cash in chips and downgrade it.

In his brief research note, Northland analyst Gus Richard took down Luminar on Tuesday, downgrading the stock to “market perform” and assigning a $41 price target to the $41.80 stock. Although Richard believes Luminar will eventually become “the automotive lidar” leader (you know, once automakers actually start putting lidar in cars), this market is “still in its infancy,” observes the analyst. (To watch Richard’s track record, click here)

Volvo will probably be the first big automaker to incorporate the technology into its cars, but even Volvo is a good two years away from “production ramp” on such vehicles. In the meantime, the 5-star analyst expects Luminar stock to wobble both higher and lower, such that even if you believe in the technology, you’ll probably have plenty of opportunity to buy this stock at better prices.

What price would be nice for Luminar stock? That’s hard to say, exactly. In Richard’s view, lidar will eventually play a role in self-driving automobiles, and the “lidar market” could be worth as much as $2.5 billion by 2025. Problem is, at its present market capitalization, Richard observes that Luminar stock costs “6x” the value of the entire automotive lidar market.

In other words, if Luminar should happen to capture the entire lidar market — i.e. if in 2025, every lidar unit sold, everywhere in the world, is a Luminar unit — the stock would still be selling for six times all of those sales (which isn’t exactly a cheap valuation, especially looking five years out). Moreover, Richard points out that realistically, Luminar probably won’t capture 100% of all lidar sales worldwide. It would actually be very lucky to capture even one-third of all sales and, even assuming that happens, the stock would still be selling for about 18 times 2025 sales.

And not meaning to beat a dead horse, but 18 times sales five years away is pretty crazy valuation, even in this market.

So why not just go all in and downgrade the stock to “sell?” Our hunch is the analyst expects Luminar’s sales growth alone might impress investors, and potentially allow the stock to hold onto most of its current valuation. From $15 million in sales this year, the analyst forecasts sales to more than double to $35 million by 2022 — then apparently zoom 2,000% more to approach $750 million by 2025.

If Luminar even just promises that kind of growth (whether or not it actually delivers), the prospect alone might tempt investors to stick around and see what happens in 2025 — especially seeing how well the stock has already done in 2020. (See LAZR stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.