AMBA and BOFI - a tale of 2 shorts

Investment Analysis Clubs Saul’s Investing Discussions
1

I’ll start by saying I changed my mind and sold out of BOFI, including the chunk I bought on the dip after the first report.

Looking at the charts and the info over the weekend, I was thinking of AMBA, which had the Citron short attack over the summer. Initially it seemed ok, but is now down about 50% from there.

Both BOFI and AMBA at the time of the shorts had seen amazing run-ups in price over the past few years. Therefore, lot of people are likely to bank their gains and ask questions later once the dust settles.

BOFI actually had bad news that could be a dark cloud until it is resolved, and anyone who initiated a position over 100 is now underwater, and is likely to sell on bounces that “get them back to even”

As Taleb says, better to overreact early then to overreact later once most of the damage has been done. (Or something like that, I forget the exact quote)

On AMBA, most of the damage looks to be done. The enthusiam I saw around the stock when it was hitting 120 or so is no longer there, and it looks like people don’t care much about it, and it looks to me like a better place to move some of the BOFI money to until there is more clarity. Though I will watch BOFI and may get back in at some point.

You get no gold stars or bonuses for holding a stock longer than someone else. Only price can create profits. At these prices I think there are better alternatives out there that the uncertainty surrounding BOFI, AMBA being one of them, and I added to that position today.

BOFI starts looking more interesting to me to get back in in the mid 70s to me assuming no worse news comes out.

8 Likes
2

AMBA is one of the later companies to file quarterly reports. Next report date is expected on 12/3. Personally, I expect an outstanding report despite the economic slowdown in China and elsewhere. It seems to me that the end consumer base for products that use AMBA components are most likely to be not too sensitive to these macro-economic factors. If they want a GoPro, they’ll go buy it.

And of course, AMBA is more than GoPro’s supplier. The Citron short attack last summer was based on one thing, the notion that once you’ve achieved a video chip with HD resolution, you’ve no place to go to escape competition - hence AMBA was supposed to join the ranks of commodity chip supplier and lose pricing power.

Posted on SA with a heavy readership by what I believe to be a relatively naïve audience of folks who largely trade based on little information beyond stock price, this flimsy assault achieved it’s goal. Anyone who has paid attention to AMBA’s public statements (most from CEO Wang) would know that there is a huge spectrum of features and functions that provide AMBA with an enormous competitive advantage. To name a few of the more obvious: 1) Power Consumption, 2) Video Compression, 3) Physical size and weight, 4) Operating range based on atmospheric conditions (temp, pressure, humidity, etc.), 5) Heat dissipation, 6) Shielding from RF interference, 7) Ability for customization via SDK . . . And that’s just a few things off the top of my head. AMBA excels along all these dimensions. And those are all technical issues.

There are also business factors such as inventory management, time to market, 0 LT debt and a barrel of cash, lost of FCF and a track record of stellar growth.

So yes, AMBA has been beaten down to about 50% of its high achieved last June/July and now trades near where it was last February.

For what it’s worth, IMO, AMBA is currently on sale. The TTM P/E is 20, the 1YPEG is an impressive 0.14 (per 1YPEG Calcs spreadsheet). If you’ve got cash because you bailed on BOFI (or any reason really) and are looking to put it to work, I think AMBA is a safe place to put it and that it will reach new highs.

But, I do have a caveat. I may hold the all time record for bad timing. So while my confidence in AMBA is very high for what I believe to be valid reasons, I won’t venture a guess about when Mr. Market will recognize that AMBA’s stock price is way too low. Patience may be required.

8 Likes
3

I haven’t had time to really research AMBA, I hold it on the Fool’s recommendation and as a strategic move to on the IOT.

I bought it before I started studying Saul’s method, and confess that I only eliminated possessions not showing a YPEG, and have not initiated any.

I have see it noted here that BOFI actually is funding its growth through the sell of stock. I do not believe that AMBA is doing the same. While selling stock is less risky, (I suppose) than selling bonds, a falling stock price would seem to make growth more expensive.

In other words, this short attack, or price fall off, has a significant impact on BOFI’s growth, (If I am following the pieces and parts correctly.) I do not see that AMBA is facing the same situation.

Cheers
Qazulight

2 Likes
4

But, I do have a caveat. I may hold the all time record for bad timing. So while my confidence in AMBA is very high for what I believe to be valid reasons, I won’t venture a guess about when Mr. Market will recognize that AMBA’s stock price is way too low. Patience may be required.

I sold TRIP a week before is started climbing. It has doubled since I sold it. I think my bad timing is better than your bad timing.

I probably should try to sell my services as a counter indicator.

Cheers
Qazulight

2 Likes
5

but TRIP was a news event you could not predict. You just got tired of being in the stock a few days early. On to the next one!

6

but TRIP was a news event you could not predict. You just got tired of being in the stock a few days early. On to the next one!

I actually like TRIP, but I am attempting to apply Sauls’ discipline to the recommendations I get.

Qazulight

1 Like