AMBA Stock to Pounce on Bears
Camera chipmaker Ambarella, Inc. (NYSE:AMBA) reported its third-quarter earnings on Thursday and, as expected, Ambarella’s Q3 results beat the Street’s estimates for both earnings and revenue. Still, AMBA stock plunged on fears of weak performance in the next quarter. I believe the sell-off is completely unwarranted. Here’s what the bears are missing on Ambarella stock.
1. Look Beyond GoPro!
Ambarella has reported strong growth in all of its segments except the sports wearables segment. The company has cited GoPro’s building inventory to be the cause of low demand, which is why this segment is expected to cause a dent in the next quarter’s earnings; hence, the lower guidance. However, all of its remaining camera segments have performed exceptionally well.
It’s high time the market looks beyond GoPro. Ambarella’s two other big clients in the wearables segment are Xiaomi and TASER, both of which tout positive demand on the market for their respective products that employ Ambarella cameras.
2. Ambarella Is Going Big on IoT
The “Internet of Things,” or IoT, is a rising phenomenon wherein devices connect and communicate to each other via a wireless network. Ambarella is now serving its cameras to various big and small companies, including Samsung, that are investing in home security in the IoT ecosystem.
In addition, the company’s advanced driver assistance systems could be huge in automobiles, as cars become integrated in the IoT ecosystem. Alphabet’s driverless car technology is being designed on the same lines. This growing phenomenon will likely prove a boon for the company, as the demand for cameras continues to grow in IoT devices.
3. Drones Are the Future!
Ambarella’s flying cameras segment probably boasts the most promising growth potential in the coming years. DJI drones, which are currently the most popular high-end drones on the market, employ Ambarella’s camera chips.
The segment, which only contributed 10% to Ambarella’s revenue in the last quarter, was the best-performing segment this quarter, following the automotive segment. Management is seeing high demand for aerial cameras this holiday season, which will help drive down inventories of its customers and ultimately boost demand for the company’s cameras in the coming year.
Ambarella has been able to differentiate its products from its cheaper Chinese peers by offering high-quality cameras with extended battery lives. Unlike GoPro, this company is also well managed when it comes to its corporate strategy and it offers a wide portfolio of products. Ambarella has consistently been posting stellar year-over-year revenue growth, boasting a strong and growing cash pile and a clean balance sheet with no debt.
The Bottom Line on Ambarella Stock
When it comes to investing, long-term discipline is always rewarding. Investors who go quarter-by-quarter are usually the most discontented. Putting it in the words of the legendary investor-turned-billionaire Warren Buffett, “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”
AMBA stock has returned solid value over the years. The stock is up more than 13% year-to-date, over 140% in two years, and more than 820% since its initial public offering (IPO) in 2012, thus far outpacing the S&P 500 index.
The bottom line: AMBA stock is not for short-term traders; those who give this stock a closer look should consider it a long-term value play.