Ambarella's CES Exhibits Can't Hide The Smell Of Dog Poop

A drone economy is near. Ambarella (AMBA) is well positioned to capitalize on drone video technologies. 

A drone economy is near. Ambarella (AMBA) is well positioned to capitalize on drone video technologies. 

Ambarella has been decimated over the past couple of days on nothing fundamental other than CES. GPRO has been also getting hammered, and right now AMBA is it’s proxy, rightfully or not. Since breaching support around $50-$48 the stock has been cascading lower on relatively low volume. The controlled nature of the selling had the feel of a forced liquidation, a possible margin call. One could say my dream has come true.

This chart looks like dog poop. Ambarella (AMBA)

Volume-wise there are no signs of capitulation however the price move is extreme enough to warrant a bounce. However, overall market sentiment may have to turn bullish in order to permit this.

Forward p/e right now is 14x. Revenue growth over the next five years is projected to be >20%/yr…. So I think this valuation is attractive and anything lower would be even sexier. In a worse case scenario, AMBA’s floor could be around $30.

What happened at CES?

The main exhibit was a demonstration of their video electronic image stabilization for 4K video. This technology is critical in the drone market, where current manufacturers must install an expensive, large, and heavy mechanism on their drones in order to achieve the stability AMBA’s new SoCs showed off.  In addition the SoCs can now record 4Kp120, which is 4K footage shot at a high enough frame rate to allow for slow motion playback, as far as I know this is a first in the industry. Those two technologies should provide AMBA with enough edge to dominate the drone market in 2016.

A demonstration of the image stability technology can be view below:

 

In automobiles, AMBA showed off an electronic mirror that integrates streaming footage from car’s rear camera and a demo of how AMBA SoCs can map the environment around a car to assist in autonomous driving and parking.

I still like AMBA’s story, they have exposure in many emerging industries and from a growth at value perspective, I can’t think of a better opportunity in the market right now. Nonetheless, AMBA can’t shake off its reputation for being GPRO dependent. The chart looks like shit and the 43% short interest, which I once thought was a positive catalyst is starting to alarm me that I may be missing something. I’ve got very little confidence in GPRO until I get more color on their drone’s features, price and release date.

As of now I am still long AMBA but have given up buying anymore on the left side because the voices in my head are telling me not to fight the market on this stock.


Drone Market SoCs. Ambarella (AMBA). CES 2016.

Electronic Video Mirror. Ambarella (AMBA). CES 2016.