Pegging AMBA

There are always issues when a stock is “linked” to another and that other stock is a dog, in this case AMBA is chained to GPRO (or as it  is affectionately known in Twitter circles –  camera on a stick).

This is unfair as AMBA is a semiconductor manufacturer with a number of revenue streams, surveillance (think body armor), automobiles (all autos have to have parking cameras by 2018) and (read below):
Ambarella, Inc. develops semiconductor processing solutions for video that enable high-definition (HD) video
capture, sharing, and display worldwide. The company’s system-on-a-chip designs integrated HD video
processing, image processing, audio processing, and system functions onto a single chip for delivering video
and image quality, differentiated functionality, and low power consumption. Its solutions enable the creation of
video content for wearable sports cameras, automotive aftermarket cameras, professional and consumer Internet
Protocol (IP) security cameras, telepresence cameras, and unmanned aerial vehicles in the camera market; and
manage IP video traffic, broadcast encoding and transcoding, and IP video delivery applications in the
infrastructure market.

Stifel thinks this Thursday may be a milestone for Ambarella (AMBA) because it’s likely to show strength beyond just the video-chip components it sells GoPro (GPRO). While a certain measure of AMBA’s growth has been closely linked to wearable cameras, Stifel believes AMBA’s 3Q results will show strength beyond that, on demand in IP security, drones, and automobile cameras. Stifel also expects a “decoupling” of AMBA shares from GPRO shares which have been closely linked. Saying AMBA’s sales can increase “in the 20%-25% range annually as new video applications emerge (with high margins),” Stifel reiterates a buy rating and $115 price target. AMBA currently trades at $63.34. 

Using PEG analysis:

The formula for the PEG ratio is:

PEG Ratio = Price-to-Earnings (P/E) Ratio / Annual Earnings Per Share Growth.

PEG has its faults as you have to estimate a growth rate,that rate is expected to be 50% over the next 12 months and given a current P/E of 27,

PEG is  27/50 or   .54  Target price = $118.50.

So there is your target price, an indicatated growth rate of half that and the stock is fully valued, less than 25% and lookout below.

As I see it, AMBA missed last quarter because of delays with GPRO, I see EPS growth better than 25% this reporting period, so I will be a buyer.

Good luck trading today , remember, buy and hold is dead.

 

 

 

 

 

 

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