We recently compiled a list of the 10 Best Lidar Stocks To Buy Now. In this article, we are going to take a look at where Ouster, Inc. (NYSE:OUST) stands against the other Lidar stocks.
The global lidar sensor industry is quite sizeable. According to research from McKinsey & Well, the sector was worth $2.5 billion in 2022 and is estimated to grow at a compounded annual growth rate (CAGR) of 10.3% to be worth $5.4 billion by 2030 end. This research report is important because it sheds light on one of the most under reported use cases of lidar. While most media coverage focuses on mobility and terrestrial lidar applications, McKinsey & Well shares that the airborne lidar market is expected to outpace the broader industry in growth terms through a CAGR of 10.9%. Geographically, while the US lidar sensor market was estimated to be worth $672 million in 2022, China will outpace the industry’s growth. The Asian country’s market is estimated to grow at a rate of 15.3% and sit at $1.3 billion by 2030 end.
This research provides us with key details when considering the factors that one must consider when investing in lidar stocks. While most hype surrounding them comes from autonomous vehicles and driver assistance platforms, firms that have Chinese exposure and sell airborne lidar products can do well provided that global trade tensions do not lead to foreign firms facing problems in China. Apart from Chinese exposure and the potential to cater to airborne lidar, other financial factors are also important.
Since lidar is a relatively smaller and nascent market as opposed to say, application processors for smartphones, firms that have secured contracts to supply lidar sensors are better than those that haven’t. Financially, gross margins (1), operating expense (2), debt profile (3), and overall cash reserves (4) are key metrics to see whether lidar stocks and companies will be able to finance their operations and gain market share in the future. Let’s put this into practice. Two lidar stocks are relevant as they seemingly lie on opposite ends of the sentiment spectrum. The first is 2nd worst AR stock to buy according to short sellers while the second was the fourth top long term stock pick of a billionaire’s hedge fund as of Q3 2023.
Starting from the lidar stock that short sellers love, for financial metrics 1, 2, 3, and 4, the results are 51%, $96.7 million, a debt to asset ratio of 0.14, and $56.8 million in cash and equivalents, respectively. This is troubling, as cash reserves are insufficient to fund operations for a year, but the firm has some room to generate funding by raising debt. It also reflects the stock’s 25.8% short interest of 25.8%. For the billionaire’s long term lidar stock pick, it has a negative gross margin, $455 million in operating expense, a debt to asset ratio of 1.74, and $161 million in cash and equivalents. Looking at the financials, it’s unsurprising that the billionaire dumped this stock during Q4 2023, and the stock’s woes are also due to its contract to supply Volvo with lidar sensors for the EX90 electric vehicle.
Shifting gears, it’s important to analyze the underlying technology that drives lidar demand and leads to revenue for the stocks. On the autonomous vehicle front, Chinese firm Hesai secured mass production designations from the Chinese joint ventures of two of America’s biggest conventional auto manufacturers and Audi. This is key for any lidar stock as it ensures that the firm can generate revenue via products that are being sold on the market, and it adds stability to the firm as Chinese giant Baidu is already using its products too. Lidar, short for light detection and ranging, uses a laser to map out an environment by analyzing reflected lasers. This means that laser wavelength, point rates, field of view, and angular resolution are key technological metrics for determining lidar efficacy.
The Chinese lidar company that won the mass production has some of the highest end lidar systems in the world. Its leading edge product, the AT512 system for autonomous vehicle use has a whopping point rate of 12.3 million points per second, 300 meter range at 10% reflectivity, and a 120 degree horizontal field of view. Other autonomous driving systems have a 360 degree field of view along with a 3.6 million points per second point rate.
Similarly, while the billionaire hedge fund’s lidar stock that we’ve mentioned above does not provide a point rate, the value can be inferred. It states that the Iris lidar system is able to analyze 300 points per square degree, so in the best case scenario of the system being able to scan a complete sphere, the value is 12.4 million points. Finally, the second favorite short seller lidar stock pick that we shared above offers a system with 14 million points per second and a 120 degree field of view.
Looking at these systems, it appears that point rates, field. of view, and country of origin are key determinants of lidar’s market performance. Additionally, while several autonomy firms use lidar, including Google’s Waymo which has self developed a lidar system, there are others that don’t. One of lidar’s most well know critics is none other than Elon Musk. A lidar is, after all, a laser, and Musk believes that traditional cameras can offer superior results. Having called lidar a “fool’s errand,” the executive commented during his company’s Q1 2021 earnings call:
“When your vision works, it works better than the best human because it’s like having eight cameras, it’s like having eyes in the back of your head, beside your head, and has three eyes of different focal distances looking forward. This is — and processing it at a speed that is superhuman. There’s no question in my mind that with a pure vision solution, we can make a car that is dramatically safer than the average person.”
Musk believes that cameras offer superior imaging capabilities especially when their input is coupled with the necessary computing power. However, while he might be the only car company executive taking this approach, his supporters felt vindicated when a pure play autonomous driving systems developer which is the eighth best autonomous driving stock to buy according to short sellers announced just this month that it had stopped developing lidar systems. The decision appears to have stemmed from both technology and cost drivers, as it stated that “substantial progress on our EyeQ6-based computer vision perception” as well as “continued better-than-expected cost reductions in third-party time-of-flight lidar units” were some of the factors that drove it.
Our Methodology
To make our list of the best lidar stocks, we first compiled a set of 14 stocks with a direct presence in the industry after research. Then, they were ranked by the number of hedge funds that had bought the shares during Q2 2024 and the top stocks were selected.
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).
A group of robotic vehicles navigating a terrain autonomously utilizing the company’s 3D vision technology.
Ouster, Inc. (NYSE:OUST)
Number of Hedge Fund Holders In Q2 2024: 15
Ouster, Inc. (NYSE:OUST) is a diversified California based lidar company that also targets the industrial, robotics, and infrastructure sectors along with automotive. This is quite important since it means that the firm has a wider moat when compared to pure play automotive lidar firms, and is also reflected in the share price. Ouster, Inc. (NYSE:OUST)’s recent share price of $6.66 makes it one of the few non penny lidar stocks on our list. The firm has been delivering well on the financial front lately. Its Q2 revenue marked a 39.3% annual growth as Ouster, Inc. (NYSE:OUST) posted $26.9 million in the segment. It has had a busy 2024 so far by having signed a deal with a robotics company that provides it with ground presence and by having acquired certification for use in traffic lights. These use cases are key for firms like Ouster, Inc. (NYSE:OUST) as they provide them with ample opportunities for diversification that can help stem any auto related lidar downturns.
Ouster, Inc. (NYSE:OUST)’s management is also focusing on the software side of the lidar business, which creates room for a high margin, recurring revenue division. Here’s what they shared during the Q2 2024 earnings call:
“Our first priority is to expand software sales and grow our installed base. In the second quarter, we secure deals to supply Ouster Gemini, our smart infrastructure software solution to one of the world’s largest consumer technology companies, as well as a global telecommunications company. During the quarter, our software team also improved movement detection for security customers, optimized software processing requirements, and enhanced our deep learning perception model to support new use cases, which is identifying unauthorized individuals tailgating into restricted areas. The second quarter also marked one of our best quarters for software attached sales. We increased our deployments at distribution yards as Gemini and REV7 are helping drive the immediate ROI for our customers, in addition to providing safety and operational optimization.”
Overall OUST ranks 3rd on our list of the best Lidar stocks to buy. While we acknowledge the potential of OUST as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than OUST 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.
