Austin Russell, founder and CEO of lidar start-up
Luminar Technologies,
isn’t happy that shares of his company are down 86% from record highs. And he’s a bit perplexed by how the market has treated
Luminar
stock. He shouldn’t be.
Big declines don’t mean investors should forget about lidar stocks. Luminar (ticker: LAZR) is a leader in automotive lidar, which is essentially laser-based radar that can serve as a set of eyes for a car’s advanced driver assistance systems, which enable a vehicle to execute many everyday driving tasks while improving overall driving safety.
There is a lot of growth in lidar as cars get more advanced. Wall Street expects Luminar’s 2026 revenue to exceed $1 billion and 2028 revenue to exceed $2.3 billion. Sales in 2022 amounted to about $41 million.
That’s some growth. “This is the part that is mind-blowing…we’re at one-fifth to one-tenth of our [value] from 2020, but we’ve met every single milestone,” Russell told Barron’s at an interview just outside of the
Deutsche Bank
auto conference in Manhattan this past week. “There’s obviously macroeconomic effects and interest rates, but our growth has accelerated.”
He has a point. Luminar’s 2022 sales were up about 28% compared with 2021. Wall Street projects $87 million in 2023 sales, up more than 110% in one year.
Growth isn’t all it takes to boost a stock, though, and a few things have weighed on Luminar shares since they hit $47.80 in December 2020.
First is expectations. While Luminar managed to exceed its 2022 internally generated sales projection of $35 million in 2022, the company thought it would generate 2023 sales of about $124 million. That’s a gap of about 30% with Wall Street’s forecast of $87 million.
Luminar stock, which closed Friday at $6.87, is down more than 30%, though. Other things must be weighing on shares.
One of those things is interest rates Russell referenced. Rising rates hit shares of start-up stocks harder than most for two reasons. First, most start-ups need money to fund their business. Higher rates mean funding is costlier. Higher rates also hit the valuations of growth companies, which generate most of their cash flow far in the future. That cash has less worth when discounted back at higher rates.
There is also the bubble factor. The stock market is prone to bubbles, driven by investors’ disdain for watching others make a fast buck.
SPAC-related stocks were in a bubble late in 2000. Luminar’s SPAC merger valued shares at $10. They rose about 370% within a month in late 2020, leaving shares valued at roughly 650 times 2021 sales.
Luminar shares might have been too expensive but they have held up better than most lidar stocks. Shares of lidar peer
Ouster
(OUST) are down about 97% from record highs, also reached in December 2020.
That probably isn’t much comfort to Russell.
What
Ouster
and Luminar need now is earnings. Those could be coming. Luminar believes it can generate positive gross profit by the end of 2023. Ouster CEO Angus Pacala told Barron’s at the Deutsche Bank auto conference that his company will provide a long-term financial model that shows concrete, realistic financial goals.
Ouster recently closed on its merger with fellow lidar maker Velodyne. That deal, which closed in February, was essentially designed to double sales on the same based of employees and expenses.
Positive gross profits and new financial goals could boost both stocks later in 2023. By how much, of course, is impossible to predict.
Write to Al Root at [email protected]
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