Autonomous, or self-driving, cars are being tested by Alphabet Inc (NASDAQ:GOOG), Tesla Motors Inc (NASDAQ:TSLA), and many other automakers but their entrance into the mass market is still years away. In the meantime, we are seeing a ramp up in the technology used on current vehicles to help drivers avoid accidents. Which company is the best of breed in this space? Well, the current top dog is Israeli-based Mobileye NV (NYSE:MBLY) and for good reason.
Mobileye is developing advanced next-generation machine-vision technologies that are found in many of the vehicles on the road. The company uses a mono-camera and software to produce its advanced driver assistance system (ADAS), which is used on vehicles to automatically monitor the car’s surroundings, helping the driver to avoid accidents.
Mobileye’s solution helps to alert the vehicle and driver to potential hazards on the road. This includes sending a signal to the car and driver regarding potentially serious driving issues, such as lane departure, vehicle proximity (covering your blind spots or potential merging collisions), pedestrian detection, and traffic sign detection.
Consider also that MBLY stock has a venture with electric carmaker Tesla Motors that uses the ADAS technology in its “Autopilot” autonomous-driving system on the “Model S” and “Model X.” You know Mobileye’s technology is advanced if Elon Musk employs it.
While Alphabet could deliver the first autonomous vehicle, MBLY stock will continue to deliver ADAS technologies that are rapidly improving and moving toward the complete solution for self-driving vehicles.
My Bullish Case for Mobileye
MBLY is growing at a rapid pace but it is underappreciated by the stock market, perhaps due to the attention afforded to Google’s autonomous vehicle.
Mobileye stock is lagging behind the market with a decline of 26% over the past 52 weeks and is well off its range high of $64.48 per share reached in August 2015. MBLY stock fell to $23.57 on February 9, prior to staging a 90% rally.
The chart shows a moving average convergence/divergence (MACD) buy signal on rising relative strength. MBLY stock appears to have broken out at just over $40.00.
Chart courtesy of www.StockCharts.com
Let’s take a look at the underlying fundamentals that support an aggressive bullish thesis for MBLY stock. Of course, there is ample risk for investors, given how fast technologies can rise and fall—especially in the autonomous car market.
Revenue has tripled for Mobileye in the last two years, rising from $81.24 million in 2013 to $143.64 million in 2014 and on to $240.87 million in 2015. The growth is expected to continue at 40.8% to $339.14 million in 2016 and 45.0% to $493.70 million in 2017, according to Thomson Financial. These are impressive metrics if Mobileye can deliver on its estimates.
The company has also managed to increase gross profits along the way.
Earnings surged in 2015 to $0.48 per diluted share and the growth is expected to continue to $0.69 per diluted share in 2016 and $1.07 in 2017. Add in the strong balance sheet that is represented by strong working capital, no debt, and free cash of $256.83 million, or $1.17 per share in cash, and you’ve got a decent stock to watch.
My view is that Mobileye could rally if it continues to stay on top of the ADAS segment and convince venture partners, such as Tesla, that its technology could move vehicles closer to being entirely autonomous.