Luminar Technologies (NASDAQ: LZAR) stock price jumped by almost 18% on Wednesday as it went through a short squeeze. It jumped to $1.58, its highest point since June 3rd, giving it a market cap of over $597 million.
Short sellers have thrived
Luminar has been a boom for short-sellers as its stock has plummeted hard in the past few years. After peaking at $47.78 in December 2020, the LAZR stock has plunged by over 96%, bringing its market cap from a record high of $14.15 billion to less than $600 million today.
This performance has benefited shorts since Luminar is one of the most shorted companies in Wall Street with a short interest of 26.56%. Short sellers borrow a stock, sell it, and then buy it back at a lower price, benefiting from the difference.
For starters, Luminar is a technology company working on Lidar technology that it will sell to automakers. Lidar is an important technology that helps vehicles to understand their surroundings, which can help them self-drive.
Luminar has reached deals with several automakers, with Volvo being its most prominent client and investor. The company is now set to launch the EX90, the first vehicle with Luminar’s lidar technology. Tesla has also started to buy its sensors, accounting for 10% of its sales.
Luminar’s stock has crashed for three main reasons. First, it is unclear whether the company has strong demand for its Lidar sensors now that many automakers have incorporated other autonomous technologies. Still, analysts expect that Luminar’s revenue will rise to $107 million this year and $234 million in 2025.
Second, Luminar faces substantial competition from companies like Velodyne, Innoviz, and Hesai Technology. This competition could make these lidar systems mere commodities, which will drag their prices.
Finally, Luminar is still burning cash and has a stretched balance sheet. It ended the last quarter with $218 million in cash and equivalents, which is a limited amount for a company that made a net loss of $125.7 million. As such, it is unclear whether its recent decision to lay off 20% of its staff will help to offset its costs.
What next for Luminar stock?
The daily chart shows that the LAZR stock price has been in a strong bearish trend in the past few months. It has formed a double-bottom pattern around $1.20. In most cases, this is one of the most bullish signs.
Therefore, the stock could have a temporary rebound as buyers target the double-bottom’s neckline at $2.32, which is about 47% above the current level. In the long term, the stock will likely remain under intense pressure as losses mount.
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