Why Ambarella (AMBA) Is Down Today

NEW YORK (TheStreet) -- Ambarella (AMBA) fell 10.8% to $31.78 Wednesday after a downgrade to "hold" from "buy" by Needham & Company.

The electronics company showed off reference designs for its new wearable cameras at CES this week. Analyst N. Quinn Bolton was impressed by the wearables, which will be used for Google's (GOOG) Helpout service, but noted that "it will take time for the wearables market to develop into a meaningful revenue opportunity." The analyst downgraded the stock to "hold" because "we see the near-term risk/reward in the stock as balanced."

TheStreet Ratings team rates AMBARELLA INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about its recommendation:

"We rate AMBARELLA INC (AMBA) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its notable return on equity, robust revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we find that the stock itself is trading at a premium valuation."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, AMBARELLA INC's return on equity exceeds that of both the industry average and the S&P 500.
  • The revenue growth greatly exceeded the industry average of 10.4%. Since the same quarter one year prior, revenues rose by 28.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • AMBA has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 5.15, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for AMBARELLA INC is rather high; currently it is at 64.38%. Regardless of AMBA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 19.84% trails the industry average.

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