Ambarella Inc: Has Ambarella Stock (AMBA) Hit a Bottom?
Ambarella Stock Set for a Comeback?
Ambarella Inc (NASDAQ:AMBA) is not a household name, but that could be a major advantage to shareholders of Ambarella stock (AMBA stock). The company’s relative obscurity helps it stay both undervalued and underhyped. Of course, these moments don’t last forever—eventually the market will correctly price the stock—but they are what investing dreams are made of.
Ambarella stock appears to be in one of these moments. Despite having gained 21% in the last twelve months, the share price is still trading well below its previous high of $126.70. There were a couple of reasons for the drought, neither of which we envision as a serious problem going forward.
First off, Ambarella’s biggest client, GoPro Inc (NASDAQ:GPRO), saw its business falter after years of stellar growth. Since GoPro accounts for roughly a quarter of Ambarella’s business, the shock to GoPro extended to Ambarella stock as well. But investors almost forgot that AMBA stock isn’t tied to GoPro forever.
The company also sells microchips to the biggest drone makers in the world, as it doesn’t have an exclusive relationship to GoPro. Ambarella can sell to whomever, meaning its fate is more closely tied to the overall trend of drone cameras and image technology.
And it doesn’t take a genius to know that those areas are booming.
In the last year alone, there have been 670,000 drones registered with the U.S. Federal Aviation Administration. There are professional leagues of “drone racing” which will soon be televised, not to mention Amazon.com, Inc.’s (NASDAQ:AMZN) plan to use drones for delivery purposes.
This stuff isn’t science fiction anymore; it is happening in real life. Ambarella supplies a key component for this 21st-century gold rush, so naturally we expect it to outperform over the next 12 months.
Second of all, AMBA stock entered a bearish period when its 50-day moving average and 200-day moving average flipped. Technical traders will recognize this as a bad sign.
Our very own technical expert, Patrick Brik, warned that investors should steer clear of Ambarella stock until the trend had reversed. “In order for AMBA stock to remain constructive, the price will need to remain above the 200-day moving average,” he wrote in early December. “If I were looking to invest in AMBA stock, I would use this indicator and wait for a bullish cross to generate.”
Well, good news on that score.
AMBA stock successfully created a bullish crossing in late December, setting the stage for a huge comeback in 2017. Just take a look at the chart below:
Chart courtesy of StockCharts.com
We have shown two inflection points where the 200-day and 50-day moving averages criss-crossed. Each time, you can see the share price react instantly. At the bearish MACD cross, AMBA stock starts dropping like a rock, and at the bullish MACD cross, it begins to recover.
Now, if you look at the bottom right of the chart, you’ll begin to see the blue line streak past the red line. That is another bullish break which could result in up to 150% gains for anyone smart enough to be holding Ambarella stock.
All in all, this stock is looking much improved in the last month.