Investors were initially eager to buy shares after Intel spun off its Israel-based autonomous-vehicle company Mobileye Global (MBLY -0.42%) on October 26, 2022.
The stock rose 129% from its initial public offering price of $21 to its 52-week high of $48.11 on Feb. 15, 2023, over investor excitement about the long-term potential of the company's ongoing development of a fully self-driving car.
But after recent earnings, the stock price has retreated significantly from its February high. So should you buy the dip in this exciting growth stock? Let's investigate.
Why investors are excited about Mobileye
Mobileye is a top hardware and software manufacturer for advanced driver assist systems (ADAS) designed to help with various tasks such as navigation, accelerating, braking, and parking. However, many investors are buying into the stock because they are excited about the company's prospects to strike gold by potentially being the first to develop and bring to market a fully self-driving vehicle.
According to Allied Market Research, the global autonomous-car industry should grow from roughly $76 billion at the end of 2020 at a 40% compound annual rate to around $2.2 trillion in 2030. And Mobileye investors are betting it can grab a meaningful chunk of that massive market.
According to management's projections, Mobileye will only generate approximately $2.1 billion in revenue in 2023, a tiny piece of the rapidly growing autonomous vehicle market. If the company pioneers the development of a fully autonomous vehicle, it would reap substantial revenue as a first mover in the space.
Beware of fool's gold
Although Mobileye started in 1999 and is among the first companies to begin the development of autonomous vehicles, it has many powerful adversaries. These include Alphabet's Waymo, Nvidia, and Tesla. So no one can guarantee the company will create the first or best fully autonomous vehicle system.
Even though Tesla's Elon Musk predicts every year that the emergence of self-driving cars is a year away, few agree with that assessment. Instead, many experts believe fully self-driving cars are at least a decade away, and some think making a fully autonomous car is impossible.
Therefore, before investing in a pure-play autonomy company like Mobileye, you should be aware that fully autonomous cars are still a moonshot idea. So instead of speculating on the company striking gold by developing such vehicles by next year, it is far safer to buy into its long-term approach of making gradual progress toward that goal.
Management is approaching it by building upon the success of its hands-off-the-steering-wheel, but it expects its eyes-on-the-road ADAS lead product, Mobileye SuperVision, to be a huge growth driver in 2023. The company says there are around 90,000 SuperVision-equipped vehicles on the road today, and it projects that number to reach 1.2 million cars by 2026.
The company's next planned step is to use the core technology of SuperVision -- the computer-vision system, maps, driving policy, and processors -- to build its hands-off-the-steering-wheel and eyes-can-leave-the-road Mobileye Chauffeur product, scheduled for production in 2026.
The holy grail is the Mobileye Drive product, a fully self-driving vehicle in the testing phase. Who knows if the company can develop Drive into a viable product that the public and regulators will accept?
Before deciding to invest, you should understand that the stock price can rapidly move up or down based only on headlines about its own or competitors' success or failure on the roadways. And government regulation is a considerable risk.
Lastly, the autonomous car industry is in its relatively early stages, and significant speculation goes into the exact size of the market and how rapidly it can expand. Therefore, there can be a considerable divergence of opinion among analysts on the value they assign the company.
The stock had a recent stumble
Until April 27, 2023, Mobileye's short life as a public company was sugar, spice, and everything nice. Then, when the company released its first-quarter 2023 earnings report, it disappointed the market, leading to a 16% drop in the stock price.
The market was upset that a price war ignited by Tesla's aggressive discounts on its electric vehicles dampened sales for Mobileye's largest Chinese-based customer, throwing a monkey wrench into its Chinese expansion plans by indirectly hurting demand for Mobileye's most advanced ADAS, SuperVision. As a result of the lowered demand, management projected a 6.5% reduction in fiscal 2023 revenue and adjusted operating income compared to the company's initial estimates given on January 26, 2023.
Should you buy it?
At the end of March 2023, Mobileye has $1.16 billion in cash and equivalents on the balance sheet and no long-term debt. And it produced $145 million of free cash flow in the first quarter of 2023. So in the near term, investors can sleep at night.
If you have an aggressive-growth mentality, today might be a good time to invest in Mobileye, as the bad news out of China that reduced revenue expectations this year likely won't last forever. And there should be significant upside ahead from the company's incrementally building from its current ADAS solution toward a fully autonomous solution.
