Why Ambarella (AMBA) Is Falling Today

NEW YORK (TheStreet) -- Ambarella (AMBA) was falling 7.3% to $31.54 Friday after forecasting a dip in gross margin in its fiscal first quarter, and despite beating analysts' estimates in the fiscal fourth quarter.

In the fiscal fourth quarter Ambarella posted earnings of 26 cents a share, which beat analysts' estimates of 19 cents a share by 7 cents. Revenue jumped 27% from the year-ago quarter to $39.97 million. Analysts surveyed by Thomson Reuters estimated earnings of $38.14 million.

For the fiscal first quarter the company expected revenue of between $39 million and $41 million, in line with analysts' estimates of $40 million for the quarter.

Ambarella expects gross margin to fall to between 61% and 63% in the fiscal first quarter, compared to 64.1% in the fourth quarter. The lower margins are expected as the company expects a mix shift towards lower-margin Chinese security cameras as sports camera chip sales decline in the wake of newer GoPro cameras.

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TheStreet Ratings team rates AMBARELLA INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their 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 came in higher than the industry average of 5.0%. 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.
  • You can view the full analysis from the report here: AMBA Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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