
- Luminar Technologies was one of the beneficiaries of the lidar boom as investors piled into the groundbreaking tech that could potentially automate transportation.
- However, 2022 has proven a rough year for the tech sector overall, with LAZR stock taking an absolute beating.
- Some long-term investors see a discounted opportunity, but a cautious approach would likely be the wisest.
If the past two years provided a critical lesson, it may very well be that Wall Street giveth and taketh away. Following a phenomenal rise in equity valuations since the spring doldrums of 2020, several publicly traded companies appear to be on life support. One of these unfortunate names is Luminar Technologies (LAZR), a specialist in lidar (light detection and ranging) technology.
For a brief recap, lidar is a detection system that uses eye-safe laser beams to create a visual picture for artificial intelligence and machine learning protocols to recognize. By bouncing pulsed light waves against surrounding objects back to the source of emission across millions of cycles, lidar systems can effectively materialize a 3D map of their environment. Naturally, this tech has significant implications for transportation safety and ultimately autonomous driving.
Luminar was among the initial batch of pure-play lidar players to launch an initial public offering (IPO), in this case via a reverse merger with a special purpose acquisition company (SPAC). Because of Luminar’s potential to facilitate a seismic paradigm shift in the personal mobility sector, countless investors piled into LAZR stock. At its peak in late 2020, LAZR was moving rapidly toward the $50 level.
But since February 2021, Luminar has struggled to maintain investor confidence. Consistently, LAZR stock bled out air until May of this year, when shares simply plummeted from an already low valuation. After yet another beating earlier this month, bearish traders reacted cynically.
LAZR Stock Put Options in Demand
After the closing bell rang out for the June 28 session, LAZR stock was again the center of attention but for the wrong reasons. A pair of put options – both with the same $6.50 strike price but with different expiration dates – caught the eye of Barchart.com’s screener for unusual options activity.
Both puts are near-term wagers. The first involves an expiration date of July 1, 2022, while the second one features an expiration exactly one week later. What’s more intriguing, the two puts ranked as the most unusual for the June 28 session, featuring an average volume-to-open-interest ratio of 155.
On transaction day, LAZR stock closed at $6.74. To get into the money, LAZR will need to decline by at least 3.6% from the aforementioned closing price, a not unreasonable bet considering that on June 28, the equity unit tanked 6%.
It then begs the question, should speculators consider piling into similar bets against LAZR stock? While any near-expiry option is incredibly risky due to their extreme all-or-nothing posture, the economic environment clearly does not support the tech sector. In addition, SPAC-based IPOs have had a torrid time recently. Even SPAC performance leaders like DraftKings (DKNG) have languished.
If I had to guess, I’d give better than 50/50 odds that the above put options against LAZR stock will “succeed.”
Looking Out to the Horizon
Still, the puts leveled against LAZR stock only tell one side of the story. Despite significant losses in the market, covering analysts remain moderately bullish on Luminar. Based on a rating scale with 5 being the most bullish, LAZR ranked as 4.2 among a consensus of 10 analysts three months ago. Presently, it ranks as a 4.25 among 8 analysts.
All in all, the consensus has barely budged. What’s more, within the past three months, no covering analyst has offered a sell rating, with the lowest being a hold. Therefore, traders that decide to move against LAZR stock are doing so against the grain.
Could it be, then, that in the long run, Luminar at its current price represents a viable discounted opportunity? In a business world gone cynical, it’s nice to see corporate executives put their money where their mouth is. And that’s exactly the case with Luminar as CEO Austin Russell has been aggressively buying LAZR stock since the start of this year.
To be clear, you don’t necessarily want to jump into stocks that insiders are buying for the fundamental reason that executives may have plenty of money to recover from their market mistakes whereas retail investors’ situations may vary. Nevertheless, when you combine the astounding potential of lidar systems to foster automated transportation, buying the dips is an enticing proposition.
Caution is Key
Ultimately, though, a measured approach to LAZR stock may turn out to be the wisest approach. While lidar is promising, it’s also important to realize that autonomous driving is a much-debated topic. We’re assuming that the tech will be up to snuff. As well, myriad questions about safety, liability and responsibility exist.
Also, for possibly the next few years, the emphasis among households will be on putting food on the table, not on computer systems that can drive their cars. Besides, if the work-from-home experiment is permanent (for full disclosure, I personally don’t think so), then the broader concept of convenient transportation is diminished.
Still, the tech is very intriguing so LAZR stock may be worth some pocket change to throw at. Again, I would just be careful.
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