Whenever a stock sells off, value investors could call the event creating a discount on its shares. So long as the company’s setbacks are temporary, that discount will shrink, pushing the stock higher.
Ambarella (NASDAQ: AMBA) fell 13% last week, from $50 a share, after a dreadful earnings report. The company is a former high-flier whose growth depended on GoPro (NASDAQ: GPRO). GoPro’s downfall, from fad company to a failed one, forced Ambarella to pivot its business towards ADAS – autonomous driving. CV1 and CV2 samples sent to suppliers validated Ambarella’s technology but in the earnings report, management admitted to headwinds. And at a 69x P/E or 21.6x forward P/E, Ambarella cannot promise CV22’s prospects without making any sales.
The ADAS market is competitive and the abundance of camera technology suppliers, especially from China, could hurt Ambarella.
Speculators could bet that management will start shipping the CV technology in mass volumes sooner than expected. If EPS grows over 40%, then AMBA stock’s discount will prove temporary. A buyout offer would also squeeze the 15.5 short float bears have on the stock.
Takeaway
GoPro is a pure speculation but Ambarella’s pivoting could play out. That positive outcome is still a speculation and is hardly assured. Tread carefully with AMBA stock.
