We recently published a list of 11 Best Lidar Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where FARO Technologies, Inc. (NASDAQ:FARO) stands against other best Lidar stocks to buy according to hedge funds.
The United Nations reports that approximately 1.35 million people die on the road annually, often due to human error. Despite various safety measures, accidents persist, driving the push for self-driving cars. These vehicles use Lidar (Light Detection and Ranging) technology to emit laser pulses, creating a 3D map of their surroundings in microseconds, allowing faster reaction times than human drivers.
According to S. N. Jha, the Principal Consultant at Fact.MR, Lidar sensors are very accurate, a fact that is driving the popularity of AVs. He writes: “Lidar sensors have been proven accurate in various autonomous driving technologies and, subsequently, are deployed in the automotive industry. Moreover, increasing expenditures in the development of numerous autonomous driving technologies are projected to stimulate the demand for Lidar sensors and scanners in multiple automotive applications in the coming 10 years.”
And there is plenty of evidence backing Jha’s assertions. Markets and Markets valued the Lidar market at $1.4 billion in 2023 and estimated that it would expand at an 18.2% CAGR between 2023 and 2029.
However, it is possible that the estimates are hugely conservative or do not expand their focus beyond autonomous cars. In recent years, some companies have developed concepts of autonomous drones and robots for use in logistics. Their goal is to get goods, especially in an e-commerce setting, from point A to B without a human in control. Besides reduced accidents, the “autonomous-ization” of logistics could lower operational costs for e-commerce companies, increase efficiency, and help them contribute positively to the battle against global warming.
ARK Invest estimates that companies in the autonomous logistics space could generate as high as $80 billion in revenue by 2026. This value may multiply exponentially to $920 billion by 2030. With all these different applications for Lidar technology cropping up, it is possible that no one is capable of doing justice to the potential of the Lidar market. We haven’t yet touched on how the increasing adoption of artificial intelligence (AI) is likely to boost demand for lidar technology. For instance, AI and large language models (LLMs) improve the processing and analysis of Lidar data, increasing the technology’s accuracy and safety.
Our Methodology
To compile our list of the best Lidar stocks to buy, we first researched extensively to identify companies with significant exposure to LiDAR technology. We defined exposure in terms of manufacturing Lidar products or components, developing Lidar-related solutions, or integrating Lidar tech into other products. We then analyzed these companies based on their hedge fund holdings in Q3 2024. The finalists are stocks with the most hedge fund interest.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An employee using a laser projector to map out the floor plan of a large room.
FARO Technologies, Inc. (NASDAQ:FARO)
Number of Hedge Fund Holders: 17
FARO Technologies, Inc. (NASDAQ:FARO) is one of the few companies in a young industry. It provides 3D measurement and imaging solutions for industries like manufacturing and construction. Its technology is a core component of Lidar systems that power many self-driving vehicles across North America and China.
In Q3 2024, the company reported revenue at the upper end of the guidance range, at $82.6 million. At the same time, non-GAAP gross margin was 56.1%—the highest quarterly level since 2019. The adjusted EBITDA was $8.9 million, approximately 11% of sales, and the non-GAAP earnings per share came in at $0.21. The EPS beat analyst expectations by $0.18.
Although the revenue in the latest quarter is down almost 5% year over year, FARO Technologies, Inc.’s (NASDAQ:FARO) financial situation is solid. For example, EPS, as noted earlier, is up 950%, only second to EBITDA, which grew 994% from Q2 2024. And the market is noticing. The stock declined most of 2024 but turned around late in the year. Right now, it has gained 37% in the past 12 months and 88% in the past six months.
The solid financial performance is due to several strategic decisions the company has made recently. For example, FARO Technologies, Inc. (NASDAQ:FARO) launched the new FARO Leap ST handheld scanner in late January. The scanner has five operating modes, including ultra-fast scanning and photogrammetry.
The launch came after FARO Technologies signed a 6-figure licensing deal with Royal BAM Group. Royal BAM Group is the largest construction company in the Netherlands, and it obtained the license to use Sphere XG software, one of FARO Technologies’ leading products. During the latest earnings call, Peter Lau, CEO of FARO, said with regard to this product: “Our Sphere XG offering since we launched it last year in Q4 has been a tailwind for us. It’s being adopted fairly regularly by our customers and not just customers that buy software only, but customers that buy software as a part of our hardware solutions.” In a recent report, Craig-Hallum’s Greg Palm maintained a “Buy” rating on the company’s stock with a price target of $36.
Overall, FARO ranks 3rd on our list of best Lidar stocks to buy according to hedge funds. While we acknowledge the potential of FARO as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than FARO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
