AmbarellaAMBA93,98 $
Today we have a very speculative idea: take shares in semiconductor manufacturer Ambarella (NASDAQ: AMBA), in order to capitalize on the rebound of these stocks after a strong fall.
Growth potential and validity: 26,5% behind 16 Months; 70% behind 3 of the year; 130% behind 7 years.
Why stocks can go up: because they ask for a magic amount 93,00 $ and automation will help a little more.
How do we act: we take shares now by 93,00 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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What the company makes money on
The company is engaged in the design of semiconductor components. She does not have her own production., and semiconductors under its brand are produced, tested and assembled by third parties.
Ambarella's annual report is rich in technical details, but there is no segment information.. Basically she makes solutions for artificial intelligence - that's all, what is connected with "machine vision" and video information processing. Sounds very cool, but in fact the company sells mainly components for cameras.
According to the company's presentation, 25% revenue comes from the automotive industry, and 75% — internet of things.
Revenue by country and region:
- Taiwan - 62,99%.
- Other countries in the Asia-Pacific region - 24,67%.
- Countries of Europe - 5,37%.
- Various countries in North America 5,48%.
- USA - 1,49%.
Geographical distribution doesn't really matter.. Ambarella ships its products to Asian companies, which outsource components for their customers from the western corporate sector.
The company is unprofitable.
Arguments in favor of the company
Fell down. The company's shares are now far from historical highs.: with 216 $ in January they dropped to 93,00 $. This is due to the obscene price of the company, but we can pick up these stocks in anticipation of a rebound.
Promising. The field of activity of the company is extremely promising. We are talking about the trend towards automation - the process is more geological, than economic: only the counter-revolution of the Luddites can reverse it.
So far, the company's products are mainly used in the field of surveillance and automotive. And there and there growth will await her: surveillance will grow by developing conditions for living in a situation of eternal pandemic, and the automotive sector will demand more and more chips as, How will cars get smarter?.
Already, there are 1,400 different semiconductor components in an average car.. Electronics is already 40% the cost of such a machine, and by 2030 electronics will be 45% typical machine cost.
But I agree with Ambarella management, that its products will be in great demand in the field of industry and robotics. The company actually makes "eyes for robots", which puts it at the forefront of the technological changes taking place in the world.
A little. The market capitalization of the company is small - 3.47 billion dollars. This will make its shares very susceptible to an influx of investors..
Can buy. I'm very bad at loss-making companies, promising investors a breakthrough. But in the case of Ambarella, we can really count on some perspectives..
The company is unprofitable not by malicious intent - just 50% its revenue is steadily eating up R&D. And this money goes to work.
In the field of semiconductors, there is such a thing as, "process nodes". Node size is measured in nanometers (nm), and the fewer nanometers a node has, the cooler and more productive the chip. For example, to solve logic problems in semiconductors, they try to use fewer chips 10 nm.
The most powerful are the chips 5 nm, but so far they make up only a very, very small part of the total world production of chips in the world - about 2%.
Ambarella mainly makes products on chips 28, 14 And 10 nm - chips of this type are in great demand for solving logic and memory problems. But the latest generations of Ambarella chips fall into the category 5 nm, which is very very cool. And this is reflected in its financial result.: its gross margin since 2020 has grown from 58 to 63%.
Ambarella's high-end solutions still don't drive much of its revenue, but the demand for them will inevitably grow, as the technological needs of today's economy demand ever greater productivity. So the company's profit is not far off..
I think, that this factor will be key for a potential buyer of Ambarella. And in combination with all the above circumstances, this may well lead the company to buy some Qualcomm. But it may become, that Ambarella will remain an independent company and enjoy the fruits of its labors.
What can get in the way
Concentration. Several customers contribute a disproportionate percentage of the company's revenue: reseller Wintech accounts for 62% proceeds, and also 13% given by device manufacturer Chicony. If Ambarella's relationship with one of them changes, this will negatively affect its reporting.
Expensive. Even after the fall of shares P / S of the company looks a bit tall - almost 11. So stocks can still fall twice.
Unprofitable. The company is unprofitable, and in light of raising rates and rising prices for loans, if only for this reason, its shares will be volatile. Yes, and the threat of bankruptcy is always nearby..
There is enough money at the disposal of the company to close all debts: 171 million on accounts plus 44.307 million debts of counterparties. The company owes 110.369 million, of which 89.284 million must be repaid during the year.
But on average, she has to burn 30-40 million a year, unplanned large expenses for expansion are also possible. So it is very likely, that the company decides to increase the issuance of shares, what can cause quotes to fall, if there is not enough demand for new shares.
Don't expect miracles. The company does not have its own production, which allows it to maintain a high gross margin. But it may not be directly affected by the current logistical crisis.: its manufacturing customers may temporarily reduce the volume of orders due to plant closures or forced production cuts. So within 1-2 quarters, at least Ambarella's revenue can stagnate.
China. A huge part of the company's business is tied to Asia: of its 899 employees, 353 work in Taiwan, 213 - in China, 5 — in Hong Kong. For comparison: in the US it employs 245 people. In investment news, I have already talked about the difficult situation with the production of semiconductors in Asia and the great interest of the United States in the technological blockade of China. So Ambarella may inadvertently find itself in the crossfire of Beijing and Washington, with the most unfortunate consequences for both quotes., as well as for business.
What's the bottom line?
Shares can be taken now by 93,00 $. And then there are the following options:
- Wait for growth until 118 $. Here we will rely on 16 Months.
- Wait for quotes to return to the level 160 $. This is a slightly more bold version., but still not beyond the foul.
- Hold shares 7 years in anticipation of the return of shares to 216 $. This seems like a very risky proposition., but still this option is not so crazy, taking into account the prospects of the company's developments.
Remember that, that stocks are volatile, so invest in them, who are mentally prepared to lose. The company is currently in transition: it is preparing to bring a very high-tech and high-margin product to the market in a very large volume, but her business in the current situation does not yet reflect her full potential.
