As it currently stands, investors are being asked to tolerate a lot of risk and uncertainty in the name, and current price levels do not make the risk/reward favorable. All of this means that the present value of Luminar shares in our opinion is below where the stock is currently trading. Some form of dilution will probably be on the table in the near future.
The entirety of Luminar's value to investors is going to come from future cash flows, and current investors will likely be required to stomach many more quarters or even years of operating losses before Luminar achieves consistent profitability.
The company has almost as much convertible debt on its books as their total assets. The problem with Luminar's balance sheet lies on the liabilities side of the equation. Likewise, they have a relatively asset light business model with low capex requirements as long as they continue to contract out manufacturing. Much of their manufacturing is contracted out, so they don't need to have significant property and equipment on their books. Luminar's assets are made up of primarily cash and marketable securities. Investors should monitor their expense growth going forward to see if expenses continue to grow at such a rapid pace compared to revenue. Given the evidence so far, Luminar could certainly have some cost discipline problems. Conversely, some companies can actually be cost disciplined and show profitability after their start-up phase is over and production is ramped. Some companies can be quite large and still have considerable operating losses for longer than many investors initially expect. While it would be nice if we could just assume that companies will gradually reduce their losses over time, this sometimes is not the case. This expense growth is to blame for why their operating losses increased from $82,331,000 to $141,895,000. Of note is that a $7,654,000 increase in total revenue was accompanied by an increase of $54,739,000 in operating expenses. This implies that the company is still a ways off of realizing operating leverage in their business model. The company is making gross losses (before operating expenses are factored in), so there is a lot of improvement to be done on this front. A company can have a $3 billion backlog, but if the total cost to service that backlog is $3.5 billion the backlog didn't end up meaning much to investors when it's all said and done. We will cover their backlog later, but just because a company has a backlog does not mean that this revenue will have any level of profitability. The critical question regarding an investment in Luminar is whether the eventual payoff to investors will justify those investors paying the current price for the shares. This ratio of losses to revenue is more akin to a startup than a $2.4 billion market cap company. In their most recently reported quarter, Luminar reported revenue of $14,509,000 and an operating loss of $141,895,000. Investors can be conservative here and wait for the company to prove they can profitably operate their business before buying shares. While the company does have a sizable backlog and is making progress on their business goals, a backlog does not guarantee that that revenue will be profitably earned. Luminar Technologies ( NASDAQ: LAZR) is losing large amounts of money every quarter and has a low quality balance sheet.
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