Why Ambarella Inc. Shares Plunged

Is Ambarella's drop meaningful? Or just another movement?

Jan 8, 2014 at 4:03PM

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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Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Ambarella and Google. The Motley Fool owns shares of Ambarella and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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