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Why Ambarella Inc. Stock Plunged Today

By Steve Symington - Jan 7, 2016 at 4:02PM

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The video chip specialist fell along with the broader market. Here's what investors need to know.

What: Shares of Ambarella (AMBA -5.35%) fell as much as 10% late Thursday on no company-specific news. 

So what: For perspective, the NASDAQ Composite Index is currently down a steep 3% today on macroeconomic concerns, so it seems more than anything Ambarella stock is being pulled down along with the broader market. To be fair, though, that's not entirely surprising; the market is still torn, after all, by the fact that Ambarella released strong quarterly results last month but followed with disappointing forward guidance. To blame, according to Ambarella management, were near-term headwinds in the wearable sports camera market.

Now what: But we should also keep in mind Ambarella shares rose modestly Wednesday after the company unveiled an impressive new line of low-power, 4K Ultra HD system-on-chips aimed at capturing the next generation of sports and flying cameras.

In addition, after meeting with Ambarella management this week at CES, Pacific Crest analyst Brad Erickson chimed in to say he believes 2016 consensus estimates are far too low, noting higher-margin drone revenue could account for as much as 20% of next fiscal year's revenue.

In the end, I've made no mystery in recent weeks that I agree with Erickson's sentiment. With shares of Ambarella down 15% over the past year -- and more than 60% below 52-week highs set this past June -- I'm still convinced they're a relative bargain today.

Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Ambarella. 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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Ambarella, Inc. Stock Quote
Ambarella, Inc.
$83.66 (-5.35%) $-4.73

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