Ambarella Inc

NASDAQ:AMBA   3:30:30 PM EDT
193.80
-6.55 (-3.27%)
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Right Now: Ambarella Has Become Massively Compelling



Fundamentals  

Written by Ophir Gottlieb, 10-04-2015

Ambarella (AMBA) is one of the most interesting and perhaps still one of the most contentious stories in all of financial markets. The company is a maker of high-definition video chipset and compression software. It does have a "secret sauce" by taking its own algorithms for action cameras and security cameras and then taking the software to turn it into products on silicon in the most power-optimized way.

The company does lean heavily on GoPro (GPRO) as a customer (30% of its revenue). The stock is down nearly 50% since an open battle began between Citron Research and Jim Cramer. At the same time, revenue is up 65% year-over-year while operating margins, earnings and free cash flow are all at all-time highs. Here's a chart of AMBA's revenue (TTM) over time.


Citron research called called the company grossly overvalued noting that AMBA had a price to sales ratio of nearly 15 to 1, while the semi-conductor industry averages 2.5 to 1. With the stock now down 42% in the last six-months, AMBA's price to sales sits at 6 to 1.

On the other hand, Jim Cramer believes AMBA has massive room to grow beyond GPRO because of drones. "People are underestimating drones. Ambarella is the brains behind drones," Cramer said on CNBC back in June. Citron on the other hand responded by saying that "the brains behind drones" is factually wrong. "It would be as foolish as saying the camera is the brains that controls the iPhone." Citron points to Intel (INTC), QUALCOMM (QCOM) and NVIDIA (NVDA) as the powerful developers behind the brains of drones.

Motley Fool Founder David Gardner has taken a strong bullish stance and wrote:
"High-definition camera software developer Ambarella is the market leader in wearable sports cameras, dashboard cams, and IP security cameras. Existing markets have huge potential, and new areas such as 4K video offer ample opportunity. Ambarella invests heavily in R&D and has a strong lead on its competitors." (Source: Fool.com).

AMBA has also found itself in the (possibly) lucrative automobile OEM business. Garmin announced that its all-in-one dashboard camera for cars utilizes Ambarella's A7LA camera in order to continuously record and save files on accident impact, providing secure footage of when and where accidents happen. It also integrates full collision warning and lane departure warning driver assistance (Source: Best Stocks for 2015: Ambarella Takes the Lead).

Along those same lines, Pacific Crest's Brad Erickson said:

"[W]e believe the highly strategic Vislab acquisition has accelerated Ambarella's effort to become a viable competitor in advanced driver assistance systems (ADAS) for automakers over the much longer term. (Source: Barron's).

By addressing ADAS, AMBA could be in position to benefit from one of the biggest secular growth drivers in automotive going forward and puts it squarely in the segment that will be grown by Apple (AAPL), Google (GOOG) and Tesla (TSLA). With a 50% haircut from its "bubbly" highs, AMBA has suddenly become a compelling stock that has ragingly strong fundamentals.