Velodyne Lidar (VLDR - Get Rating) is up 39% this week. The company makes lidar sensors that are used in autonomous vehicles. Investors are becoming increasingly interested in the sector due to its growth potential.

Many believe that within a decade, all vehicles will be autonomous. Given that nearly 80 million cars are sold every year globally, this presents a massive opportunity for companies like VLDR. According to Grandview Research, the autonomous vehicle industry will grow at a CAGR of 63.1% from 2021 to 2030.  

Background

VLDR started trading under its own ticker in September as it went public through a reverse merger with Graf Industrial Corporation. 

VLDR’s primary product is its solid-state sensor for advanced driver assistance systems. Over the last 12 months, it had $77 million in revenue. This compares favorably to its chief rivals in the LIDAR space – Luminar Technologies (LAZR - Get Rating) and Collective Growth Corporation (CGRO - Get Rating), who have no revenue.  

Catalysts

All of the LIDAR stocks have posted solid gains in recent weeks. For much of the summer and fall, there was a relentless rally in growth sectors like EVs, clean energy, cloud computing, and e-commerce. 

Now, we are seeing investors bid up shares in sectors that are adjacent to these markets such as charging stations, lithium, and batteries. One of the major reasons that investors have an insatiable appetite for growth opportunities is the combination of low rates and low growth. This leads to multiple expansion for stocks and sectors with growth potential. 

In recent months, there’s also been meaningful progress in autonomous vehicles with Google’s (GOOG - Get Rating) Waymo beginning a pilot program in Arizona, while Tesla (TSLA - Get Rating) announced its intentions to launch a robotaxi at some point in the near future. 

Eventually, every automaker will have to have some sort of autonomous feature in their vehicles to remain competitive. This will create massive demand for LIDAR sensors which are integral to most autonomous systems. 

Luminar Technologies

While the macro backdrop and progress in autonomous tech are longer-term catalysts, the short-term catalyst for Velodyne Lidar’s strong week is most likely due to the strength in its competitor, Luminar Technologies (LAZR). 

In mid-November, LAZR completed its reverse merger with Gores Metropoulos. Since then, shares have climbed more than 300% in a week. This strong performance led investors to get interested in VLDR. 

Additionally, VLDR has a much more established business, while LAZR doesn’t have revenues yet. Despite this difference, LAZR has a valuation of $14 billion, which makes VLDR’s $3.5 billion market cap seem more attractive. 

What’s Next

The global LIDAR market is expected to reach $2.5 billion in 2025 and then projected to continue growing between 20 and 30% over the next decade. So, based on current valuations, these companies have already priced in significant growth. Yet, they also face some formidable challenges such as several startups and existing auto component manufacturers expected to enter this market.

These issues should concern longer-term, fundamentally-oriented investors, and highlight that the stocks will see some significant pullbacks. However, in the near-term, these stocks have considerable momentum in a frothy market environment which seems likely to continue chugging higher into year-end.

The POWR Ratings also reflect this divergent picture. Overall, VLDR is rated a Sell. However, it has a “B” for Trade Grade and Industry Rank with a “D” for Buy & Hold Grade and Peer Grade. Among Industrial – Machinery stocks, it’s ranked #55 out of 61.

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VLDR shares fell $0.92 (-4.62%) in premarket trading Thursday. Year-to-date, VLDR has gained 90.38%, versus a 15.08% rise in the benchmark S&P 500 index during the same period.

About the Author: Jaimini Desai

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...

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