Luminar Technologies: Don't Let The Lasers Blind You

May 16, 2022 2:31 PM ETLuminar Technologies, Inc. (LAZR)AEVA, OUST, VLDR4 Likes
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Summary

  • Luminar has extensive support from major investors and institutional backers, including Peter Thiel, BlackRock, Vanguard and others.
  • The company holds several key partnerships with major carmakers, including Mercedes-Benz, Volvo, and Nissan.
  • Luminar recently acquired Freedom Photonics, a manufacturer of high-performance lasers.
  • There may be other LIDAR companies with more attractive fundamentals compared to Luminar.

high definition Lidar and camera sensoe for self driving car sensor seen

kynny/iStock via Getty Images

Luminar Technologies, Inc. (NASDAQ:LAZR) is one of the leaders in LIDAR technology in the equity markets by market cap and funding. The business model is to revolutionize the autonomous vehicle industry by implementing its technology in cars, trucks, and others.

However, buying into this growth story, which is supported by many institutional investors, still comes with a hefty price tag in terms of fundamentals. And perhaps there may be other companies that give you more bang for your buck.

Brief History

Luminar is a company focused on the development and production of vision-based LIDAR, and machine perception technologies primarily for self-driving vehicles. Since its launch, the company has secured numerous key partnerships with companies such as MobilEye (INTC), Nissan (OTCPK:NSANY), Mercedes-Benz (OTCPK:DDAIF), Volvo (OTCPK:VLVLY), and others.

Luminar History

Luminar IR

The company was originally founded in 2012 in California by current CEO and founder Austin Russell, who was 17 years old at the time. The first 5 years were spent in stealth mode, after which they received US$36M in series A funding in 2017. In August 2020, they went public through a SPAC, at a valuation of about US$3.4BN.

In 2021, they managed to bring in US$31.9M in revenue, and now are forecasting revenue of US$40M+ in fiscal year 2022. Despite the revenue growth, Luminar still remains a cash-burning startup, reporting an operating loss of over US$214M for the full year 2021. However, they do have a strong cash position of nearly US$707M. A good chunk of the balance sheet is covered by long-term debt totaling US$609.8M.

Luminar 2022 Outlook

Luminar IR

Roughly two months ago, they acquired Freedom Photonics, a manufacturer of high-power lasers. Luminar had been working with the company for several years, and now plans to vertically integrate the acquisition. At the time of the report, Freedom Photonics would receive up to 3 million shares in Luminar, according to SEC statements.

The company's revenue mix will likely include a combination of hardware, as well as software for autonomous vehicles. Their first Lidar, called "Iris," and associated software are on track for series production by the end of 2022. Their full solution, consisting of hardware and software, called "Sentinel," will also be slated for beta release by the end of 2022.

Institutional Backing and Insiders

Another important point is that the current founder and CEO, Austin Russell, is also chairman of the board of directors, and thus carries a lot of power and responsibility. While it is good to give full control to a young, growth-oriented individual, it can be a challenging move given that he is 27 years old and that this is technically his first venture that he has started.

The institutional landscape seems to have a lot of confidence in him, as evidenced by institutional share ownership and recent insider purchases, which I consider to be a very bullish signal.

Finviz Luminar Insider Trading

Finviz

As mentioned, institutions also play a major role. They currently own about 33% of all outstanding shares. Investors include Vanguard, BlackRock, Allianz, Citadel, Peter Thiel, and others. Compared to March of last year, institutional ownership has nearly quadrupled.

Wall Street also seems to have bullish price targets for Luminar, ranging from the most bearish price target of US$10 per share to the most bullish of US$38 per share. The average price target for LAZR is currently US$23.56 per share, up over 127% from the current share price of US$10.36.

However, the current CEO seems to be very hands-on. He said he is all in on the company, and renounced any short-term gains offered to him. He favors receiving no compensation at all until the stock price reaches US$50 per share, as he said in the last Q1 earnings call.

LAZR Institutional Ownership

Institutional Ownership (Fintel)

A closer look at Luminar's competitors

Personally, I believe there are better deals to be found in the stock market when it comes to LIDAR. Some of Luminar Technologies' competitors are Velodyne Lidar (VLDR), Aeva Technologies (AEVA), and Ouster (OUST). While they may be smaller in terms of size and market capitalization, I think they are definitely worth looking at.

In terms of cash reserves for scaling up operations, Luminar is trading at 5.12 Price/Cash compared to 1.48 for Velodyne, 1.66 for Aeva and 2.97 for Ouster. Of the 4 companies, Luminar also has the most Long Term Debt/total debt. The best "bang for your buck" in terms of balance sheet currently seems to be Aeva, as it has almost no debt, and is one of the lowest of the four when it comes to price/cash value.

LIDAR Comparison

Author's Graphics

Luminar and Velodyne also have significantly more cash burn, in terms of operating expenses. Aeva and Ouster both had -US$118M in operating losses, compared to -US$230M for Velodyne and -US$268M for Luminar. Ouster and Velodyne also seem to really stand out in terms of revenue compared to the other 2. Luminar has a pretty high P/S ratio of 108, compared to 7.09 for Velodyne and 12.60 for Ouster.

The biggest problem I see in terms of Velodyne is the negative expected revenue growth. Ouster, on the other hand, seems to have the highest expected revenue growth of all four, 117%. Looking at gross margin, Aeva and Ouster are also the only ones that currently have a positive gross margin. Therefore, I would currently be inclined to choose Ouster.

The only drawback I see with Ouster is the fact that they may need to raise more capital, as they have US$161M in cash and cash equivalents. However, they did describe in their most recent earnings call that they are taking out a US$50M loan with no shareholder dilution, subject to the close of the first quarter.

Luminar Target Market

Luminar IR

Cash Burn & Valuation

As mentioned earlier, Luminar has a strong cash position of almost US$707 million, which makes them the best-funded among its main competitors. Before the end of 2022, the CEO expects the number of shares to be around 360 million, including the shares recently issued for their acquisition of "Freedom Photonics."

In the earnings call, they also mentioned that their expectations for the next quarters in terms of operating losses will be slightly higher than their operating losses for the first quarter. In Q1 2022, Luminar had -US$82.3M in operating losses, which gives me a projection for the full year 2022 of over US$330M. Given their US$707M cash position, they still have about 2 years to become cash flow positive and scale up production.

Luminar Financial Highlights

TIKR Terminal

Before changing my rating to a "buy," I would first like to see if Luminar is able to deliver on its promises in terms of high gross margin after going through mass production. In their first shareholder panel for 2020, they claimed that they could achieve a gross margin of 64% by 2025.

Financial Highlights LAZR

Luminar IR

Final Conclusion

Luminar may have closed some important partnerships and become a leader among its competitors in terms of market capitalization, but, in terms of fundamentals, there may be better deals out there. Albeit, it also seems that Luminar has attracted strong belief and support from institutions and hedge funds, and other legacy investors like Peter Thiel.

For me personally, Luminar still remains too speculative. I would like to see management's ability to do mass production and demonstrate the future profitability of the company.

This article was written by

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Long-term, Innovative Research. Providing independent research with a unique perspective on publicly traded equities and other securities. Wright's Research favors a data-driven investing model based on fundamental metrics, while accounting for cost declines and adoption rates to provide exposure to growth and innovation at a reasonable price. We typically employ both bottom-up and top-down approaches in our investment strategies.
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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