Why Ambarella Inc. Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Ambarella  (NASDAQ: AMBA  )  fell more than 13% during Wednesday's intra-day trading after an analyst at Needham downgraded the stock to hold from buy.

So what: While Needham analyst Quinn Bolton remained impressed by Ambarella's wearable offerings unveiled at this year's CES -- including a new pendant camera platform designed in a partnership with Google for use with its Helpouts service -- at the same time, he noted shares looked pricey following a nearly 45% run-up over the past month alone.

And that seems fair enough. Even after today's pullback, Ambarella stock is still trading around 27 times next year's estimated earnings, and nearly 7 times sales.

Now what: But that still doesn't mean Ambarella shareholders should be running for the hills. After all, in Q3, the company not only grew revenue by a solid 24% year over year to $35.7 million, but also managed to increase adjusted net income per share by almost 35% over the same period.

As a result, and despite today's downgrade, I'm still convinced we're talking about a healthy, fast-growing company poised to reward patient investors over the long term.

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Read/Post Comments (4) | Recommend This Article (11)

Comments from our Foolish Readers

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  • Report this Comment On January 08, 2014, at 4:24 PM, pedrokoz wrote:

    Cut it out Steve. As any seasoned investor in semi stocks knows, this is over-valued at $25. At 27x next years hopeful earnings this is priced for perfection north of $25. Look at IMOS. A prudent investor should wait on this one. Its a company in a narrow field with plenty of competition. As margins narrow the PE fades.

  • Report this Comment On January 09, 2014, at 4:21 AM, Stymie67 wrote:

    Sure Pedrokoz, they may be 10-20% overvalued on technicals, but find me many stocks (not just tech) in today's market that are not LOL

    As long as the near-future catalysts and thesis/growth story around AMBA remains, I am definately buying more on dips like this. I love it when one analyst out of several lowers a rating and the market over-reacts. Its been one of the main ways I have made good money on individual trades.

  • Report this Comment On January 09, 2014, at 10:07 AM, 5128 wrote:

    INSIDER SALES:

    Remember when an insider sells stock others may also sell their stock because of that sale. The president recently sold 105,000 shares and still retained 506,000. We do not know the personal reasons why he sold but we do know he was wise enough to know the price of the stock might drop. When amba dropped 4 points his paper loss was $2,000,000. But that is a temporary loss and he is still long on the stock by 506k shares. Just don't jump when an insider sells as there is another side to the story.

  • Report this Comment On January 10, 2014, at 12:56 PM, travisty357 wrote:

    Another 8% dip today. Just bought some more. I believe in the long term success of this company.

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