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Luminar Technologies Struggles to Find Its Direction in December

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Luminar Technologies (NASDAQ:LAZR), the lidar-sensor maker, entered December trading at $24 on a one-way ticket to $40. Unfortunately, it hit a major speed bump a few days after its Dec. 3 public debut. LAZR stock fell from a 52-week high of $47.80 all the way to a low of $22.32 before rebounding slightly the closer we’ve gotten to the end of the year.

The first hit to its share price came on Dec. 9. That was due to profit-taking and the news that competitor Innoviz was merging with Collective Growth (NASDAQ:CGRO), a special purpose acquisition company headed by former Canopy Growth (NASDAQ:CGC) CEO Bruce Linton.

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The second hit came on Dec. 15 when Intel (NASDAQ:INTC) subsidiary Mobileye suggested that it might develop its own lidar units rather than partnering with Luminar.

December has been a crazy first month of trading for the automotive company. However, it appears that the stock has bottomed, and aggressive investors have bought on the dip.

As I write this, it’s trading at over $37. Should you buy before it heads back to $40 or waits for it to return to the low $20s?

I’ll look at both arguments.

LAZR Stock Is Ready to Return to $40

Not everyone thinks Luminar is overvalued at $40. Northland analyst Gus Richard recently suggested that the price decline after the Mobileye news was nothing to fear but fear itself.

“1) We do not believe an internal lidar system could be ready for 2025 production. 2) LAZR will be the entrenched supplier to Mobileye by that time. 3) Intel is developing lidar, and we believe INTC’s SiP group has other priorities. 4) If Mobileye had an internal solution ready to go they would not have announced a deal with LAZR,” Tipranks reported on Dec. 16.

Richard suggests that it would take Intel the better part of five years and as much as $1 billion to develop its own internal lidar system suitable for autonomous driving taxis.

As a result of the stock’s price decline, Richard upgraded LAZR stock to outperform from market perform with a target price of $41.

Can you say $50?

Here at InvestorPlace, contributor Louis Navellier discussed buying on the dip on Dec. 14. Although LAZR has regained the losses from the Mobileye news and then some, it is still down nearly 11% from its 52-week high.

As Navellier suggests, a bet on LAZR is a bet on lidar technology and the idea that self-driving vehicles will someday become the norm benefiting Luminar Technology shareholders.

It’s not a ridiculous argument to make.

Luminar Is a Better Buy Near $20

In 2019, Luminar lost $94.7 million on $12.6 million in revenue. It estimates revenues will grow to $15 million in 2020 with an operating loss of $72 million, both slightly better than a year ago.

However, I don’t think there’s any doubt based on the here and now that it’s expensive at almost 600 times sales. To get to $40, you’ve got to use a lot of imagination.

InvestorPlace’s Larry Ramer believes that it is astoundingly overpriced. He believes that if you do want to get in on the action for companies supplying sensors for autonomous driving, Velodyne (NASDAQ:VLDR) is a much better buy.

Based on annualized total sales of $103.4 million, it’s trading at a much more reasonable 33 times sales. Ramer goes on to suggest that short-seller Citron Research believes LAZR has a much better chance of falling back to $20 than it does, revisiting $40.

Further, Velodyne’s diversification makes it a much safer risk in terms of margin of safety. He believes Luminar should not be bought above $20.

The Bottom Line

In September, I recommended LAZR because I liked its potential and the possibility of hitting $800 million in sales by 2025. At the time, it was trading around $12 and had just announced its combination with the Gores Metropoulos SPAC.

Fast forward three months and it’s completed its combination and had a wild first month trading as a public company.

While I understand what Ramer is saying about Velodyne, I still feel like Luminar’s story is more interesting, which will ultimately provide it with a much larger valuation.

I wouldn’t put a lot of money into LAZR. However, if you can buy it in the low $20s and afford to lose 100% of your investment, the upside potential is significant.

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

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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