Luminar CEO Austin Russell doesn’t understand why its stock is down. We do.

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Austin Russell, founder and CEO of lidar startup

Light technologies
,

is not happy that his company’s shares have fallen 86% from record highs. And he’s a little puzzled by how the market has treated

Lamp

stock. It shouldn’t be.

The steep declines don’t mean investors should forget about lidar stocks. Luminar (ticker: LAZR) is a leader in automotive lidar, which is essentially laser-based radar that can act as a pair of eyes for a car’s advanced driver assistance systems, which allow a vehicle perform many everyday driving tasks while improving overall driving. security.

There is a lot of growth in lidar as cars become more advanced. Wall Street expects Luminar’s 2026 revenue to exceed $1 billion and 2028 revenue to exceed $2.3 billion. Sales in 2022 were around $41 million.

It is a certain growth. “That’s the part that’s mind-blowing…we’re one-fifth to one-tenth of our [value] starting in 2020, but we’ve hit all the milestones,” Russell said. Barrons during an interview just outside the

German Bank

automotive conference in Manhattan last week. “Obviously there are macroeconomic and interest rate effects, but our growth has accelerated.”

He has a point. Luminar sales in 2022 are up about 28% from 2021. Wall Street forecasts $87 million in sales in 2023, up more than 110% year over year.

However, growth isn’t all it takes to drive a stock, and a few things have weighed on Luminar shares since hitting $47.80 in December 2020.

First of all, it’s the expectations. While Luminar managed to exceed its 2022 internally generated sales forecast of $35 million in 2022, the company believed it would generate sales in 2023 of approximately $124 million. That’s a gap of about 30% from Wall Street’s forecast of $87 million.

Luminar stock, which closed Friday at $6.87, was down more than 30%, however. Other things must weigh on stocks.

One of those things is the interest rates that Russell refers to. The rate hike has hit start-up stocks harder than most for two reasons. First, most start-ups need money to fund their business. Higher rates mean financing is more expensive. Rising rates have also affected the valuations of growing companies, which generate most of their cash flow in the distant future. This money is worth less when discounted at higher rates.

There is also the bubble factor. The stock market is prone to bubbles, driven by investors’ disdain to watch others make a quick buck.

SPAC-related stocks were in a bubble at the end of 2000. Luminar’s SPAC merger valued the stock at $10. They are up around 370% in a month at the end of 2020, leaving stocks valued at around 650 times 2021 sales.

Luminar stocks may have been overpriced, but they held up better than most lidar stocks. Lidar peer shares

Expulsion

(OUST) are down about 97% from record highs, also reached in December 2020.

That’s probably not very comforting to Russell.

What

Expulsion

and Luminar now needs revenue. These could happen. Luminar believes it can generate positive gross profit by the end of 2023. Outster CEO Angus Pacala said Barrons at the Deutsche Bank Automotive Conference that his company will provide a long-term financial model that shows concrete and realistic financial goals.

Ouster recently completed its merger with fellow lidar maker Velodyne. This agreement, reached in February, was essentially aimed at doubling sales on the same basis of employees and expenses.

Positive gross earnings and new financial targets could boost both stocks later in 2023. By how much, of course, is impossible to predict.

Write to Al Root at allen.root@dowjones.com