Why Luminar Technologies Should Be Bought on Weakness

Daily Trade

Finding new growth stocks can be a risky endeavor. This is the case with Luminar Technologies (NASDAQ:LAZR) and with LAZR stock.

A graphic showing a car driving down a snowy road with its lidar scanning the surroundings.

Source: Oskari Porkka/ShutterStock.com

At first glance, LAZR stock appears to be attractive – a slam dunk, even. But first impressions can turn out to be wrong in many circumstances. And an investor’s relationship with a company is one such situation. There’s really no way to know for sure how the relationship is going to work out. So, investors are left with their research and experience to guide them.

When it comes to Luminar, the outlook is mixed.

A Look at LAZR Stock

Luminar Technologies is fairly new to the stock market. The company went public by merging with a special purpose acquisition company, or SPAC.

When a SPAC deal occurs, a specially purposed acquisition company conducts an initial public offering. It  has a limited time to merge with a private partner. When a partner is found and the merger takes place, the acquisition company then fades away. The formerly private firm remains, gets a ticker and is traded in an equity market.

This process is usually cheaper and easier than the traditional IPO. However, SPACs are not as transparent as companies that conduct IPOs. That’s because investors do not have the same amount of information that is available from an IPO.

SPACs became fashionable during 2020. This was especially the case in the electric-vehicle segment, where several nascent EV hopefuls used SPACs to reach the market.

Although LAZR stock arrived via a SPAC merger, Luminar is not an EV company. But it is involved in the transportation industry, and its products may very well be used in EVs to enable assisted and autonomous-driving systems.

Luminar, based in Orlando, Florida, went public in December 2020. After hovering in the $10 range, the shares began climbing in the weeks prior to the reverse merger.

LAZR stock surged once the company reached the market and then fell for half a week or so before partially recovering its loss. The stock’s range so far is $9.45 to $47.80. The shares closed yesterday at $31.46.

The company’s market cap is about $10.2 billion.

One for the Road

Luminar developed a system called lidar, which means light detection and ranging. The laser system helps an autonomous vehicle to see. It works differently than the camera-based systems deployed by Tesla (NASDAQ:TSLA).

The existence of competing systems is not uncommon in a developing technology. Companies are working feverishly to prove their ideas and bring them to the emerging marketplace.

And that is especially true in this emerging segment. Ultimately, the market may consolidate around one or two offerings, but this is a long way off. In addition, it’s also possible that vehicle manufacturers will utilize a combination of tools and seek the benefits they offer.

Also, although Luminar is not the only lidar producer, it is considered by many to be the leader of the sector. The other leading contender is Velodyne (NASDAQ:VLDR).

However, InvestorPlace contributor Luke Lango reported recently that Luminar holds a competitive advantage because of its product’s cost and performance. He also says that LAZR stock could be a big winner in the next few years. He wrote:

“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 company’s sensors will inevitabl{y} be outfitted on million and millions of cars over the next several years.”

Meanwhile, Luminar is working with Intel (NASDAQ:INTC) subsidiary MobileEye on that company’s driverless vehicle project. LAZR stock recently dipped when it looked as if MobileEye was moving ahead without Luminar. Those fears were eased, but a separation looks possible as MobilEye’s project moves ahead.

The Bottom Line

Luminar Technologies makes laser-based systems, known as lidar, for assisted and autonomous driving systems. The company’s products are viewed as top-flight, and many observers believe its future is bright.

Luminar is new to the stock market, having arrived only last month through a SPAC merger. Its shares surged quickly, then fell, and recovered some of their losses.

Investors should expect volatility from a new listing and this is no exception. Nevertheless, LAZR stock merits a place in diversified portfolios with a long-term outlook and tolerance for risk. With that in mind, it’s a buy on future dips.

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

Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C. and began writing for InvestorPlace in 2020.

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