Sometimes beating quarterly estimates isn't enough. Shares of Ambarella (NASDAQ:AMBA) took a 12.7% hit last week after landing ahead of Wall Street's top- and bottom-line targets, slipping as a result of uninspiring guidance. 

Ambarella's fiscal first-quarter results were solid. Revenue rose 12% to $64.1 million, a far cry from the growth it was cranking out in its prime, but this is only the second time in the past six quarters that the video-chip maker has come through with double-digit gains.  Adjusted earnings per share climbed to $0.39 for the quarter from $0.34 a year earlier. Analysts were only holding out for an adjusted profit of $0.36 per share on $63.5 million  

The outlook that Ambarella initiated for the current quarter landed on the other end of market expectations. The former tech darling sees revenue of $69 million to $72 million, 8% year-over-year growth at the midpoint. Wall Street was expecting a third straight quarter of double-digit growth. Analysts were already forecasting a decline in adjusted profitability, but with revenue growth slowing and gross margin contracting, they're paring back their earnings targets for the fiscal second quarter by even more now.

An Ambarella chip attached to a camera.

Image source: Ambarella.

Eyeing a market opportunity

Ambarella credits its growth during the first quarter to strength in its security, wearable, and automotive cameras. It's been struggling in the once promising drone market, a factor weighing on its current quarter's outlook, but it sees new opportunities in robotics and with automotive original equipment manufacturers.

The stock's been dangerous to own over the past year. This is the fourth quarter in a row that the stock has fallen by at least 4.4% the day after posting fresh financials. It has landed ahead of analyst income estimates every time, but ho-hum guidance has been its downfall every time.

A few Wall Street pros stepped up in support of Ambarella following the sell off. Matthew Ramsay at Canaccord is reiterating his Buy rating at a $72 price target. He feels that the company will remain in transition until its computer vision products hit the market, something that even Ambarella seems to suggest, given its outlook for flattish revenue growth for the entire fiscal year. 

Suji Desilva at Roth Capital is encouraged by the stabilizing of demand patterns. He sees healthy diversified growth, sticking to his Buy rating and $65 price goal.

Richard Shannon at Craig-Hallum feels that the drone market weakness is overblown. Shannon prefers to focus on computer vision devices. His $68 price target validates his cautious optimism. 

Ambarella took a hit last week. The trend suggests that it will also disappoint three months from now. However, with the stock taking a big step back, and new catalysts in the works, it is becoming a more compelling investment.