AEye (LIDR) just started shipping its Apollo ultra-long-range lidar sensors to a top U.S. defense contractor, which highlights demand for advanced detection technology in both manned and autonomous aircraft applications.

AEye’s announcement generated a surge in excitement, with shares recording a 32.8% gain over the last week and a staggering 170.2% share price return across the past three months. While the latest defense deal points to growth potential, the stock’s one-year total shareholder return of 144.4% stands in sharp contrast to its three-year total return, which remains deep in negative territory. Momentum is clearly building as investors are increasingly reacting to concrete signs of commercial traction and a shift in risk perception.

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With the recent surge in share price and attention around AEye’s defense breakthrough, the key question for investors is whether the current valuation still leaves room for further upside or if the promise of future growth is already reflected in today’s market price.

Price-to-Book of 12.1x: Is it justified?

At $3.08 per share, AEye trades at a price-to-book ratio of 12.1x, putting it well above both its direct peer group and the broader electronics industry average.

The price-to-book ratio is a popular indicator for technology hardware businesses, benchmarking a company’s market value against its net assets. A company with rapidly scaling technology might deserve a premium, but it is vital to consider if current fundamentals support such a high mark-up.

In this case, AEye's valuation looks disproportionately high. The US Electronic industry averages a price-to-book of 2.7x, and peer companies sit at 4.8x. The market is pricing in dramatic future growth or strategic upside that is not yet visible in fundamentals. There is no fair ratio available to help pinpoint an alternative baseline. This valuation stands out as aggressive relative to sector norms.

Result: Price-to-Book of 12.1x (OVERVALUED)

However, sustained profitability challenges and dependence on continued defense contracts could quickly dampen the current momentum if growth expectations are not met.

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A great starting point for your AEye research is our analysis highlighting 1 key reward and 6 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.