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What to Expect from Ambarella (AMBA) When It Reports Earnings

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Ambarella (AMBA - Free Report) is a semiconductor design company focused on low-power, high-definition and ultra HD video compression and image processing products. Currently sitting at a Zacks Rank #3 (Hold), Ambarella will be posting its earnings report next Tuesday. Read on for the inside scoop on Ambarella so you can stay ahead of the curve.

Breakdown

Ambarella stock has seen extreme fluctuations over the duration of the last calendar year, including a 26% drop over the span of five days in September 2017.

Despite Ambarella’s shaky past, there could be potential if its current business ventures pan out. The company is putting a lot of effort and money into making chips to solve problems associated with autonomous cars.

However, the firm is met with strong barriers to entry, with many already well-established companies competing in the space. Still, the industry is expected to grow 47.5% annually through 2025, so getting strong footholds now would prove crucial for this company.

AMBA’s “F” grade for Value in our Style Scores system is indicative of the company’s potential but lack of execution to date. With a P/E ratio of 34.9, compared to an industry average 18.6, investors are clearly paying a premium for the chances that AMBA does hit it big in the autonomous vehicle business.

And with continued revenue drops, the company can only hold on to the media frenzy for its new CV chip for so long. The company’s Q4 2017 revenue saw a 19.3% drop year over year, and it appears the company is setting up for another hefty slump this quarter.

Forecast

Our Zacks Consensus Estimates put Ambarella Q1 2018 revenue at $56.2 million (-12.3% year over year) and earnings at $0.09 per share (-76.9%). Q1 estimates have remained constant throughout the quarter, and when this is coupled with its steadily decreasing stock in recent trading periods, we do not high hopes for the coming earnings report.

As stated earlier, the biggest reason to avoid this stock, besides disappointing revenue, is the competition Ambarella faces when entering the autonomous car market. Companies such as NVIDIA (NVDA - Free Report) and Intel (INTC - Free Report) are the two biggest problems.

Intel acquired Mobileye last year and is working with Waymo, the current leader in the autonomous car industry. NVIDIA just released a chip ten times more powerful than its former counterpart and has more than 200 partnering companies testing its chips. On top of this, NVIDIA and Intel have cash holdings of $7.1 billion and $14 billion, respectively, compared to just $434 million by Ambarella.

Bottom Line

Intense volatility in the past year, a lack of revenue growth in multiple quarters, and a noticeable overvaluation makes this stock a very risky option, especially heading into its earnings report. The company’s share prices heavily rely on the success of its long-awaited CV chip, but even this is most likely a few months away. Overall, Ambarella stock is probably not the safest option currently.

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