Most investors have heard of Luminar Technologies (NASDAQ:LAZR) before. The red-hot disruptive tech startup makes laser sensors â€” called â€œLiDARâ€ â€” which power self-driving cars. On hype that its sensors will forever change the automotive market, the company has been all the rage on Wall Street. LAZR stock â€” once priced at $10 in November â€” nearly touched $50 in early December, representing a whopping 5X gain in a month.
But stocks donâ€™t go up in straight lines forever. Just as quickly as LAZR stock shot up to $50, shares of the self-driving tech company dropped below $30.
Make no mistake. This recent drop in LAZR stock is a golden opportunity for long-term investors to buy into what may turn into the marketâ€™s best growth story of the 2020s.
What is that story?
Self-driving is quickly becoming a reality. LiDAR sensors will be the technology backbone of the self-driving revolution. Luminar makes the best and most economic LiDAR sensors in the market. The companyâ€™s sensors will inevitably be outfitted on millions and millions of cars over the next several years. As that happens, Luminarâ€™s revenues and profits will soar into the billions-of-dollars range.
Luminar stock will soar, too.
By how much? My numbers say that LAZR stock has nearly 500% upside potential over the next few years.
Hereâ€™s how that could happen.
The Self-Driving Revolution
Welcome, ladies and gentlemen, to the self-driving revolution.
Once just a science fiction concept that popped up in movies and books about the future, self-driving cars are quickly becoming a reality. Semi-autonomous cars are already on the roads, conducting test drives in various cities throughout the world, including Phoenix, Detroit, Boston, Berlin, London, and many, many more.
Fully autonomous cars are not too far behind. Indeed, in China, fully autonomous vehicles without any driver in the car are already being tested.
Itâ€™s only a matter of time before these semi-autonomous and fully-autonomous cars go into production mode, and end up in the garages of consumers all across the globe.
Worldwide, about 70 million new passenger cars are sold every year. All 70 million are expected to include some form of autonomous driving capability by 2030, with most having partial automation (the vehicles can perform steering and acceleration, but require a human to still monitor tasks and take control) and a handful having high automation (the vehicles can perform all driving tasks in most conditions).
This is a disruption like no other. The entire multi-trillion-dollar auto market is on the cusp of being uprooted by AV technology.
One of the way best ways to play this disruption is by buying LiDAR stocks. In that group of LiDAR stocks, the cream-of-the-crop is LAZR stock â€” so, in effect, arguably the best way to play the self-driving revolution is through buying LAZR stock.
LiDAR Is the Technological Foundation of Self-Driving
The key to unlocking full autonomy is to enable cars to have complete â€œvisionâ€ â€“ or, more specifically, give them a human-like ability to see and respond to their surroundings.
Ideally, you want to do this with built-in cameras, since cameras are space and cost efficient.
But computer vision has significant limitations, so it has become commonplace across the AV space to equip cars with add-on, laser light perception sensors called LiDAR.
These LiDAR sensors essentially beam out laser pulses to their surroundings. Those laser pulses return to the sensors. The sensor then either carefully measures the time-of-flight of those laser pulses, or a change in frequency of the returning light wave, to create a proxy for distance. Do this thousands of times in a 360 degree frame-of-view, and voilaâ€¦ you have a complete and dynamic â€œpictureâ€ of the surrounding environment.
Some say that CV technology will make significant enough advances over the next few years to make LiDAR sensors antiquated. Elon Musk is one of those people, and history shows that the Tesla (NASDAQ:TSLA) CEO is often right.
But, most other industry experts agree that LiDAR will forever have a place as the foundational technology of self-driving. They argue â€” and correctly so â€” that CV is still a long ways from being very good, and it will never be perfect, meaning there will always be a place for LiDAR to â€œfill in the gapsâ€.
To that end, LiDAR sensors will be a commonplace manufacturing part of the cars of the future. Indeed, if all 70 million cars have some form of self-driving capability by 2030, then it is quite likely that most of those 70 million cars will be outfitted with LiDAR sensors.
In other words, thanks to the self-driving revolution, LiDAR sensors are on the cusp of going from niche to ubiquitous in the auto market.
Who is the best in the world at making LiDAR sensors for cars? Luminar â€” which, of course, means LAZR stock is the best LiDAR stock to buy for the self-driving revolution.
Luminar Makes the Best LiDAR
There are lots of LiDAR makers out there. Many of them have recently gone public.
Velodyne (NASDAQ:VLDR) is the incumbent. The industry giant thatâ€™s been in the LiDAR game for a long time. Thereâ€™s also Aeva, who is going public through a merger with InterPrivate Acquisition Corp. (NYSE:IPV). They are employing a unique frequency-based approach that is different from the time-of-flight approach that has become status quo in the LiDAR market. Innoviz â€” who is going public through a merger with Collective Growth Corporation (NASDAQ:CGRO) â€” is another player in this space.
All interesting companies. All have compelling upside potential.
But none stack up to Luminar.
When it comes to the LiDAR space, Luminar is best-in-breed.
The company has leveraged multiple technological breakthrough innovations to develop the industryâ€™s best LiDAR sensors â€“ and itâ€™s not even close. Luminarâ€™s sensors have the:
- Longest range (250 meters of visibility, versus 150 meters or less across all other LiDAR sensors).
- Best resolution (300 pixels/degree of resolution, versus 100 pixels/degree of resolution across all other LiDAR sensors).
- Best weather resilience (Luminarâ€™s sensors perform nearly as well in bad weather as they do in good weather, whereas most other LiDAR sensors degrade significantly in poor weather).
- Strongest interference-proof technology (Luminarâ€™s sensors boast zero interference from sunlight and other LiDAR, whereas most other LiDAR sensors struggle with blocking out that interference).
- Lowest cost (Luminarâ€™s LIDAR is built on just one laser and two receivers, industry-low numbers which lead to industry-low costs per sensor).
So, when it comes to making low-cost, high-performance LiDAR, Luminar has no parallel. That is great news for LAZR stock.
Strength Corroborated by Partnerships
Luminarâ€™s unprecedented strength in LiDAR technology is corroborated by the companyâ€™s big deal pipeline and wide partnership network.
Seven of the top 10 passenger car OEMs have partnered with Luminar, while most major programs in trucking and robo-taxi have done the same. Altogether, Luminar has 50 commercial partnerships which represent 75% of the global passenger vehicle, trucking and robo-taxi ecosystem.
Many of these partnerships are in advanced stages.
Two of them â€“ one with Volvo (one of the largest passenger car companies in the world) and another one with Daimler Truck (one of the largest truck companies in the world) Â â€“ are in the series production phase. Indeed, Volvo projects to start producing semi-autonomous passenger cars with built-in Luminar LiDAR in 2022.
And so begins Luminarâ€™s march to $50-plus billion company â€” and LAZR stockâ€™s march to $140.
Huge Upside for Luminar Stock
Now that we know Luminar is a long-term winner at the epicenter of the self-driving revolution, letâ€™s run the numbers on LAZR stock.
Current estimates peg semi-autonomous and fully autonomous vehicle sales at 70 million by 2030, representing near 100% penetration in those markets. Luminarâ€™s order book with Volvo implies that the company will nab ~1% of this market by 2025. Management is targeting 4% penetration by 2030. Given Luminarâ€™s strong technological advantages and robust deal pipeline, 4% market share seems totally doable.
That implies about 2.8 million Luminar LiDAR-integrated cars in 2030. At ~2 sensors per car, that equates to 5.6 million sensors. Luminarâ€™s financials imply average unit revenue of ~$1,000 per sensor, for total revenue by 2030 of $5.6 billion.
This is a capital-light, high-margin business, with management targeting 50%-plus EBITDA margins by 2030. That implies $2.8+ billion in EBITDA, which my numbers suggest could flow into $2.5 billion or more in net profits â€” or about $7 per share.
High-quality auto parts suppliers trade around 20X forward earnings. A 20X forward multiple on $7 in 2030 projected earnings per share implies a 2029 price target for LAZR stock of $140 â€” nearly 500% above todayâ€™s price tag.
Bottom Line on LAZR Stock
Luminar stock is a long-term winner with tons of upside potential over the next decade thanks to the self-driving revolution.
Recent weakness in LAZR stock is nothing more than near-term noise which does not impact the long-term, big-picture bull thesis on Luminar.
What do we do when long-term winners suffer from largely inconsequential near-term pullbacks?
We buy the dip. LAZR stock is no exception to this rule.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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