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BRAZIL – October 9, 2020: The Ambarella logo is depicted on a smartphone in this photo illustration. [+] (Image courtesy of Rafael Henrique/SOPA Images/LightRocket/Getty Images)
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Despite a more than 2.5x increase from its bottom in March 2020, we feel Ambarella Incorporated stock (NASDAQ: AMBA) has further upside potential at its current price of $104 per share. The stock of Ambarella has risen from $40 in March 2020 to $104 today, while the S&P 500 has risen by about 90% from its lows. Furthermore, the stock is up roughly 50% from where it was prior to the outbreak. However, we predict Ambarella stock might rise more than 20% to reclaim its previous high of $128 in 2021, owing to forecasts of steady, continued demand growth and solid Q1 2021 results. What Factors Caused A 197 Percent Change In Ambarella Stock Between 2018 And Now, According To Our Dashboard? contains the numbers that support our assumptions.
Price of a Stock
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Ambarella is a semiconductor design firm that makes processors for a wide range of applications, including video compression, image processing, and computer vision. The increase in stock price since the end of 2018 is attributed to a 5% increase in sales from $228 million in FY 2019 to $239 million in FY 2019 (Ambarella’s fiscal year ends in January). RPS (revenue-per-share) fell from $7.00 to $6.60 during this time due to a 10% increase in the number of outstanding shares.
Meanwhile, as demand for Ambarella’s goods has grown, the company’s P/S (price-to-sales) multiple has risen from 10x at the end of 2019 to 16x now. However, we believe that the company’s P/S ratio has the potential to rise further in the short term as a result of continued demand growth and a favorable shareholder return strategy, causing the stock price to rise.
What Is The Future Of The Stock?
The global spread of the coronavirus, as well as the ensuing lockdowns and quarantines, has caused a reduction in computer device demand. However, demand has increased since then, as seen by Ambarella’s Q1 2021 earnings, which increased to $70.1 million from $54.6 million in FY ’20. Operating loss fell to $10.1 million in Q1 2020 from $15.6 million in Q1 2020, as expenses increased at a slower pace. EPS improved to -$0.30 from -$0.45 throughout this time period.
ADDITIONAL INFORMATION FOR YOU
Furthermore, with the global lockdowns lifted and semiconductor demand from a variety of industries continuing to rise, we believe the company will continue to see strong revenue growth in the medium term, and profitability could rise further in the near to medium term if Ambarella continues to successfully control expenses. This will enhance investor expectations, resulting in a higher P/S multiple for the company. Ambarella stock, we feel, can rise more than 20% from present levels to reclaim its recent high of roughly $128.
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