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Mobileye’s Incredible Growth Opportunity




Fundamentals     


##Symbol##MBLY

The segment that Mobileye lives in may present the single most compelling growth opportunity in all of information technology.

Mobileye (MBLY) designs and develops software and related technologies for camera-based advanced driver assistance systems (ADAS). Over the last 16 years the company has been developing ways for automobiles to see and respond to what they are seeing, just the way we humans do -- but better, faster, and all the time.

In a press release, the company noted, "we have collected millions of recorded miles of road experience data across more than 40 countries at all times of day and in all types of weather." That database allows the company to train algorithms to recognize road signs, lane markers, pedestrians, bicyclists, and other vehicles in all kinds of lighting conditions and at all kinds of speeds (Source: The Motley Fool).

According to the World Health Organization (WHO), about 600,000 motorcyclists, bicyclists, or pedestrians were killed in 2014 (and another 600,000+ automobile drivers). If MBLY has its way, many of those people would still be alive today. Further, beyond safety, MBLY will allow drivers to go hands free in traffic jams, on the freeway, country roads and even city streets. MBLY already lists Tesla (TSLA), Audi, BMW, GM (GM), Mitsubishi, Volvo and several other automakers as partners.



The growth potential for MBLY is almost absurd it's so large. Today about 2% of new cars have ADAS and the most bullish expectations are for 50% of new vehicles in 2022 to have ADAS. And let us not forget, MBLY's ADAS can be installed on existing cars as well. Once the safety data gets digested, it's not unlikely that governments will require ADAS systems in cars, much like the air-bag phenomenon. That coincidence of events may be the single most compelling growth story for any segment in technology.

On the most recent earnings call, August 6th 2015, MBLY beat estimates. EPS came in at $0.10 versus consensus estimates of $0.08 (yes, the company is profitable) and revenue came in at $53 million, beating estimates of $48 million. The company has over 30 pilot programs with auto-manufactures right now and the CEO (Ziv Aviram) simply stated, and I'm paraphrasing, this technology is coming, the market is huge, every car will need one, and its going to change driving forever. To quote him, "The second quarter demonstrated continued strong performance, highlighted by new EyeQ3 launches and increased demand for existing programs. [] During the quarter, we saw further support for regulatory implementation of ADAS and continued customer interest in the adoption of autonomous driving."

➜ MBLY generates $1.48 in revenue for every $1 in expense, which is quite high and above the sector average of $1.07 and it's in full out, full blown, growth mode.

MBLY's revenue (TTM) has risen for six consecutive quarters, each to new all-time highs. Year-over-year revenue (TTM) growth is just under 43%. Operating margins, net income and R&D are rising, as the company delivers positive free cash flow even in the middle of explosive growth.

I remind all readers that a report just like this one is available for any company for free on CMLviz.com. No e-mail. No login. Free. Forever. Period.



Gottlieb Risk Factor  

MBLY has elevated stock price movement potential over the next 30-days (movement up or down). Although several proprietary factors affect the risk rating, in particular for MBLY some of the items driving the rating are:
↳  A large absolute stock return over the last 3-months (+32.4%).
What is this "risk factor"?

    The stock price range reflected by the option market over the next 30-days is ($57.40, $69.10).


Technicals   |   Support: 57.87   |   Resistance: 64.14   

Golden Cross Alert: The 50-day MA is now above the 200-day MA.
Swing Golden Cross Alert: The short-term 10 day MA is now above the 50 day MA.

MBLY has a four bull (high rated) technical rating because the stock is trading above its 10-, 50-and 200- day moving averages and even though the stock is down on the day, the 10-day MA is above the 50-day MA (also called a "swing golden cross").



Let's look at the core elements that drive the company's fundamental rating.


Fundamentals Rating Summary



METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Revenue (TTM US$ Millions) 173 121

Operating Margin (QTR) 1.48 1.12 1.27 RISING

Net Income (TTM US$ Millions) 15 -1 RISING

Levered Free Cash Flow (TTM US$ Millions) 63

Research and Development (US$ Millions) 11 8 5 RISING

Research and Development Expense/Revenue 0.199 0.243 0.283 FALLING





Stock Returns and Chart

MBLY is up +32.4% over the last three months and up +75.5% over the last six months. The stock price is up +89.8% over the last year.

Before we dig into the fundamental trends that drive the rating, let's look at an all-time stock chart with regression channel and 10-day momentum (on the bottom).
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Now let's examine the visualizations of the critical financial measures.



METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Revenue (TTM US$ Millions) 173121


Revenue (TTM) is trending higher meaning that it has increased for at least five consecutive quarters (in this case it's six consecutive quarters).

Note that MBLY is growing revenue by 42.6% year-over-year. Any number over 20% has an added impact on the fundamental (star) rating.

What do all these numbers mean?
MBLY's fundamental rating benefited these results:
1. The one-year change was positive.
2. The one-year change was greater than +20% (an extra boost to the rating).
3. The two-year change was positive.
Finally, the up trend (consecutive quarters) in revenue benefited the fundamental (star) rating.

Let's look at Revenue (TTM US$ Millions) in the chart below. Note that the green bar represents an all-time high.


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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Operating Revenues/Operating Expense 1.481.121.27RISING


This is perhaps the most remarkable result for MBLY in terms of the current day. Operating revenue over operating expense simply shows us how much revenue (in dollars) is generated for every dollar of expense. The ratio must be (at a minimum) above 1.0 in order for a company to turn an operating profit. For the latest quarter MBLY showed a ratio of 1.48 which is not only above 1.0 (so the company is generating an operating profit), but it's huge for the entire sector (which averages $1.07). For a point of reference, AAPL generates $1.40 per $1 of expense and Facebook (FB) generates $1.47. MBLY is above both. Hello?

What do all these numbers mean?
A year ago Operating Revenues/Operating Expense was 1.12. In the last year we can see operating margins are increasing and are also currently greater than 1.0 (the critical level).

MBLY's fundamental rating was affected from the operating margin numbers in two ways:
1. The current value is above 1.0 (the firm generates an operating profit).
2. The one-year change was positive (raises the rating).

Let's look at Operating Revenues/Operating Expense in the chart below with the total assets in the orange line (and note that total assets are up 141% year-over-year.


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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Net Income (TTM US$ Millions) 15-1RISING


Net Income (after tax profit) over the trailing twelve months (TTM) for MBLY is rising and positive. The TTM number one-year ago was a small net loss. In the most recent trailing-twelve-months, the company reported a profit of $15 million.

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars and the quarterly results in the gold line.


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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Research and Development (US$ Millions) 1185RISING


Research and Development (US$ Millions) in the most recent quarter for MBLY was $11 million, up nearly 29% year-over-year. Further, we can see that R&D today relative to two-years ago is up 110%.

R&D per dollar of revenue for the latest quarter is $0.199. Last year this measure was $0.243 (it's falling).

In our final time series chart we plot Research and Development (US$ Millions) in the blue bars. Note the rising bars from one-year ago.


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Summary
MobileEye was in the labs, working on its product for more than 15-years before going public. Demand is growing,and its coming from manufacturers, governments and the consumer. The safety benefits alone reveal a remarkable growth opportunity. Add to it the undeniable transition into self-driving cars for convenience being worked on by every car manufacturer from Tesla (TSLA) and General Motors (GM) to even Apple (AAPL) along with a strong likelihood of governmental requirements for ADAS, and the upside feels limitless.

The risks of course surround competition and adoption of a particular brand. ADAS could (will) grow by thousands of percent, but that doesn't mean MBLY benefits. This is a young market with entrants that we don't even know of, ready to compete. For now, however, there simply seems no better positioned company than Mobileye. One huge phenomenon to note: MBLY has a market cap of nearly $14 billion on revenue of $173 million. So, yeah, the colossal growth is already priced in.

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