Why Investors Are Finding Ambarella Inc (AMBA) So Expensive

California-based Ambarella Inc (NASDAQ:AMBA), which enables creation and sharing of HD videos globally (think GoPro), reported second quarter earnings during after hours Thursday — EPS and revenue came above the market’s expectations. “We had solid growth from IP security, both from professional and home monitoring camera markets”, said CEO Fermi Wang.
NasdaqGS:AMBA Ambarella Income Statement by Simply Wall St
NasdaqGS:AMBA Ambarella Income Statement by Simply Wall St
Forward guidance, an important figure for a small-cap stock, with struggling top- and bottom-line, like AMBA, was also in-line with the estimates. A guidance miss during the previous earnings report led to a big decline in share prices — AMBA is down more than 20% year-to-date and almost 7% since its last release.
NasdaqGS:AMBA Ambarella Past and Future Earnings by Simply Wall St
NasdaqGS:AMBA Ambarella Past and Future Earnings by Simply Wall St
Yesterday, shares jumped nearly 3% after the release; however, company shares are set to open a sharp 14% lower on Friday, based on the pre-market data. Despite several growth fronts, one reason that investors have brought its value below the semiconductor industry’s average has been shrinking margins. During the second quarter, AMBA reported a 63% gross margin compared to the year-ago quarter’s 67.1%. Net income came in at $16.5 million for the quarter compared to $18.5 million a year-ago. Although the year-ago quarter was a tough comparison, considering it was one of AMBA’s best performances, clearly, profitability remains an issue. So while the company is reassuring to look for more growth areas, investors aren’t able to justify paying more than 30 times its earnings, especially when they continue to drop. Find growth stocks that are also growing earnings