The bullish run for semiconductor company Ambarella, Inc. AMBA, which jumped 305% to touch a 52-week high of $128.06 on Jun 18, has come to an abrupt halt.
As soon as some negative report about the stock emerged on Friday, investors started dumping the stock in frenzy, causing it to crash to $119.35.
The panic continued in the subsequent trading sessions, as shares continued their downtrend, losing nearly 21% on Monday.
What Really Caused the Stir?
Ambarella is a supplier to GoPro GPRO, the company that makes interesting video capturing devices that caused quite a stir last year. Ambarella has largely ridden on GoPro, but this one-trick pony was skating on some pretty thin ice.
It was short-seller Citron Research that finally did the damage, publishing a report that claimed that the stock was ridiculously overvalued. The firm set a 1-year price target of $60 and an 18-month target of $40.
It also criticized Ambarella lack of innovation, saying that it faces severe commoditization risks and therefore, increasing competition in the days ahead.
Citron Research last year burst the 3-D printing bubble saying that Wall Street was unnecessarily bullish on the sector. It emphasized that stocks like 3D Systems DDD and Stratasys SSYS were hyped up and not valued on the basis of their financials. Citron Research’s prediction turned out to be true 18 months later as most of these stocks are 80% off their highs.
Investors, based on the validity of Citron Research’s previous predictions, dreaded a similar fate for Ambarella and therefore sold off their shares before they could incur a loss.
Our Take
Ambarella develops chips for the high-definition (HD) video capture market. This Zacks Rank #1 company’s products are used in digital still cameras, digital camcorders, and video-enabled mobile phones. Its chips can also be used for drones, observation and police body cameras.
It has put up a historical EPS growth rate of 74.65% and has a projected growth rate of 70.38%, significantly higher than the industry average of just 0.12%.
Moreover, Ambarella’s current cash flow growth rate is an impressive 96.56%, far higher than many of its peers, and the industry average. In fact, the industry average is just 14.52%, suggesting that Ambarella is a better pick in terms of cash flow.
Right now, the company has an S/TA ratio of 0.93 compared to the industry average of 0.72.
That is not all. Over the past 30 days, two estimates have been revised higher for the current year. The magnitude of these revisions has also been impressive. The Zacks Consensus Estimate for the full year surged from $1.67 per share to $2.67 per share.
So the numbers indicate that Ambarella’s bull run may not be on hot air and investors could benefit from a little patience.
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