What to Expect from AMBA Stock?
GoPro Inc (NYSE:GPRO) is reporting its fourth-quarter results today. We have once again reached a critical juncture, as the market sets its eyes on Ambarella Inc (NYSE:AMBA) stock. Wait… Why is this relevant to Ambarella stock, again?
Somehow, it is, but for all the wrong reasons.
AMBA stock has moved in tandem with GPRO stock for a year now. Mr. Market continues to see the two through the same lens. The widely held belief is that Ambarella is heavily reliant on GoPro. But bear with me as I quash this belief once and for all.
The first half of 2015 was great for Ambarella. This was when the smart money was betting heavily on GoPro. Sentiments were overly optimistic for the action camera maker. Little did investors know that they were helping build a fad. Yes, that’s how brutally GoPro is discredited now.
But more than GoPro, its biggest supplier benefitted from the market. Ambarella, which made 30% of its revenue from GoPro, saw its stock skyrocket to levels even GoPro couldn’t achieve.
But of course, the higher you are, the harder you fall.
Ambarella’s demise began after the summer of 2015. That’s about the same time GoPro took some missteps. Lack of corporate direction, mispricing of new cameras, and an inadequate marketing strategy underscored the troubles for GoPro.
Following this, the bears jumped in to punish Ambarella stock for GoPro’s wrongdoings. Ambarella stock was declared “guilty by association.”
But in the midst of this mayhem, one important development was taking place that the market chose to overlook.
Ambarella Broke Free From GoPro!
While GoPro was going through a rough patch, Ambarella was slowly diversifying its business beyond GoPro.
In the last six months, GoPro’s management has done little to turn around the company. No new products have been launched and no significant strategic changes have been undertaken. Meanwhile, Ambarella has taken up new clients and introduced new products.
Ambarella’s management has moved some of its focus away from the wearable cameras segment to three of its other segments. All three of these segments are expected to see immense growth in the coming days. Bear in mind that GoPro only contributes to Ambarella’s wearable cameras segment.
Now, these three segments AMBA stock is focusing on are automotive cameras, security cameras, and flying cameras.
I’ve covered each of these in my previous analyses, but here’s a quick refresher…
First off. Ambarella is taking long strides in the flying camera (drone) segment. The company has taken up some of the heavyweights in the industry as its clients. It has also lately introduced a next-generation “H2” chip for drone cameras. This chip is being touted as a game-changer in this fast-growing industry.
Likewise, Ambarella’s automotive camera chips are another promising product line. These chips will receive good traction as driverless technology takes off.
Meanwhile, AMBA stock’s strong presence in the security cameras industry will continue to rake in revenue for the company.
In short, take GoPro out of the equation and Ambarella still looks great on a stand-alone basis.
Better yet, when compared to its peers, I don’t see a more lucrative prospect than Ambarella stock. Consider big chipmakers like Intel, Qualcomm, and Texas Instruments. Believe it or not, Ambarella beats all of them on all the important fundamental metrics.
Ambarella offers the best return on equity against the cheapest price multiples. It also boasts a clean balance sheet with no debt and soundest short-term liquidity position. One would be a fool to not see the sheer undervaluation here.
Regardless of how GoPro fares today, AMBA stock must not receive more ad hominem mistreatment from the market.
The bottom line: Ambarella stock will soar once the market sees its potential beyond GoPro.