My thoughts on AMBA

My thoughts on AMBA

We’re investing in AMBA because of:
Great growth of revenue and earnings.
Great prospects for the future.
Reasonable PE in relation to its growth rate.
Which gives a low 1YPEG of 0.34 currently.

The stock had shot up THIS MONTH from $90 to $126 based on:
Great earnings reported in early June.
Excitement over the emerging prospects for the company with the addition of drones.
Momentum buyers (who probably didn’t know anything about the company except that it was going up).
A short squeeze, of shorts (who probably didn’t know anything about the company either except that they had thought it had gone up too much,) who shorted too early, $25 before the top, and then were forced to cover as it kept rising.

So how is our original hypothesis?

Revenue Growth?


2012:   25.9   27.8   35.7   31.5  =   121.1
2013:   33.9   37.7   46.0   40.0  =   157.6
2014:   40.9   47.0   65.7   64.7  =   218.3
2015:   71.0

Great Revenue growth. Clearly even accelerating the last three quarters. And how about adjusted earnings?


2012:   11   23   31   18  =   83
2013:   21   26   37   26  =   110
2014:   25   37   68   68  =   198
2015:   71

Wow! Enormous acceleration the last three quarters! How is our original hypothesis doing?

Growth of revenue: rapid and accelerating
Growth of earnings: rapid and accelerating
Reasonable PE: A little less than 39
Rate of earnings growth (TTM): 114%
Rate of earnings growth (last three quarters): 135%
Rate of earnings growth (last quarter): 184%
1YPEG Low: 0.34

Are we happy with this as an investment? Of course! Is there any bad news that would change our opinion? No!

Let’s relax!

Saul

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And how will things look a year from now? Let’s put in some hypothetical figures:

For the next (July) quarter: Since there is traditionally a substantial jump from the first quarter to the second, but we want to be conservative, how about 88 cents? (Last year they rose 12 cents sequentially from a 25 cent base, this year we are guessing only up 17 cents sequentially from a much larger 71 cent base).

For the (Oct) quarter: Usually their biggest quarter because they are shipping for the Xmas season. How about up 19 cents more sequentially to $1.17?

For the Jan quarter: Often down a bit sequentially, but flat last time . What do you think of $1.12?

Finally, for next April’s quarter: Usually flat to up a few cents sequentially. Let’s go for $1.14.

That comes to a total of $4.31 in trailing earnings this time next year. I think I’m slightly on the conservative side of realistic, but if you disagree, speak up!

That gives us 431/244 for a trailing rate of growth of 76.6%. Let’s go for a PE down to 34, which gives us a 1YPEG of 0.46, still very reasonable.

That PE of 34, by the way, on trailing earnings of $4.31, gives us a stock price of $146.50, which gives us an anticipated gain in the next year of 55% from yesterday’s close of $94.35.

Here’s what it looks like with those estimates penciled in:


2012:   11   23   31   18  =   83
2013:   21   26   37   26  =   110
2014:   25   37   68   68  =   198
2015:   71   88  117  112 =  388 
2016:  114 

Are we happy with this as an investment? Of course! Is there any bad news that would change our opinion? No!

Hope this helps.

Saul

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“Are we happy with this as an investment? Of course! Is there any bad news that would change our opinion? No!”

Wise calm words in the midst of a storm, Saul. But in this case a lovely storm giving some an opportunity to purchase shares at a reasonable price.

I bought AMBA when MF originally recommended. Paid $17.95 a share. At the current price of $94.36, the gain has been around 425%. If history is any indication and at the current revenue and growth rate, we have not seen AMBA’s best days yet.

Relax indeed.

Thanks, Saul.

Jim

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