Ambarella Jumps After Analyst Says Buy After Big Selloff

NEW YORK (TheStreet) -- The shares of Ambarella  (AMBA) are rising after research firm Canaccord defended the stock in the face of a highly negative report on the company by short-selling blog Citron Research. The company develops processors used in high definition cameras.

BACKGROUND: In an article published last Friday, Citron called Ambarella's valuation "ridiculous," given the competition the company is facing and the lack of demand for its products in certain areas such as security. According to Citron, Ambarella's stock is worth about $30 per share, versus its current price of around $104. After the article was published, Ambarella's stock tumbled about 26% before today's open.

ANALYST REACTION: In a note to investors earlier today, Canaccord analyst Matthew Ramsay wrote that the technological advantages of Ambarella's chips are enabling it to gain market share and design wins, as well as making its current customers more likely to continue using its products. Specifically, Ambarella's processors offer significantly better video quality, compression efficiency and lower power than those of its competitors, the analyst believes. These advantages will become more meaningful when new video technologies become more prevalent, Ramsay wrote. Additionally, Ambarella should benefit from the increased proliferation of drone cameras and security cameras, which together should significantly boost the company's results, the analyst believes. The company's earnings can reach $5 per share in fiscal 2017, predicted the analyst, who contended that Citron's report is "largely void of well-researched content." He kept a $115 price target and Buy rating on the shares.

PRICE ACTION: In early trading, Ambarella climbed $9.30, or 10%, to $104.

WHAT’S NOTABLE: Ambarella’s chips are in GoPro’s (GPRO) HERO action camera line. After selling off yesterday, shares of GoPro are up $1.47 to $56.39 in early trading. JMP Securities analyst Alex Gauna this morning raised his earnings estimates for GoPro to reflect the company’s second half of 2016 entry into the “booming” drone market. He kept a $105 price target for the shares.

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