So if you want to invest a company that’s riding the wave of digital video then you might consider selling AIOCF and buying AMBA.
AMBA is trading at around $73 and has TTM Adj EPS of $1.98 per share giving it a TTM P/E of 36.9. This may seem high but it’s not when you compare it to the EPS growth rate. The TTM EPS growth rate (full year over full year) was 80%. Yes, that’s for the full year. This gives AMBA a 1YRPEG of 0.46. AMBA will report earnings in early June and the guidance is for $0.56 Adj EPS. This would drop the P/E from 36.9 to 31.9 and drop the 1YRPEG from 0.46 to 0.32. BTW, the 1 year TTM EPS growth rate will accelerate to 100.9% if they meet their earnings guidance!
Of course, these numbers don’t matter that much unless their rapid growth continues into the future. But we know that unlike AIOCF, AMBA management cares about profits and have been growing them like crazy. If the shift from analog video to digital video continues then AMBA will probably continue to grow rapidly. Their supply agreement with Xiaomi should really help sustain their growth. How many Chinese will buy the Xiaomi camera? Could be a lot, I think.
Chris
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Chris,
Thanks for this. I will take a closer look at AMBA.
I believe there was a discussion about AMBA’s client base that’s critical in predicting growth prospect. My understanding is that 30~40% of AMBA’s revenue comes from GPRO. (Please correct me if I’m wrong) And understanding GPRO and its future prospect would be important should AMBA continue to rely on GPRO heavily going forward. What’s your thoughts on AMBA’s strategy/ability in increasing client base? (or is that even necessary for them?)
Xiaomi is new piece of information to me, (I guess I need to do my homework first) and just wondering how much Xiaomi means to AMBA in terms of transaction size.
Hex
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And understanding GPRO and its future prospect would be important should AMBA continue to rely on GPRO heavily going forward. What’s your thoughts on AMBA’s strategy/ability in increasing client base? (or is that even necessary for them?)
Yes, Hex, customer concentration is a risk with AMBA. The Xaiomi deal will help with that. You have to be comfortable with the customer concentration. You will also want to read through their annual report so you can see from which markets (and what %s) their sales are coming.
Chris
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Chris,
This does not have to be an either/or decision. I have not completely lost faith in AIOCF (it’s been rattled though). I still hold a small position in this company. I hold a larger position in AMBA. I’ve owned AMBA since before I was even aware of Avigilon.
As I noted before, this does not have to be an exclusive or. You can own both (I do). You might have noticed that Avigilon put slightly more than 4% back on its price today. Yeah, that’s a ways away from recapturing everything it shed yesterday, but it seems to be recognition that the market over reacted to the bad news in the quarterly numbers.
I never want to underestimate the influence of the CEO, be it good or bad. Fernandes seems to be too interested in capturing market share. This company is a niche player, it will never emulate Amazon, so they can’t forgo earnings for long. But capturing share at this stage of the game might not be such a bad idea.
I’ve got a small position at risk, I’m willing to ride this pony a while longer.
Another quarter has gone by and AIOCF continues to focus on its top line. Earnings per share increased only 25% to $0.15 from $0.12 in last year’s quarter. Fernandes continues to demonstrate that he’s willing to sacrifice the bottom line to achieve top line growth. Expenses and hiring continue to increase at a rapid rate. As I’ve said before, I think this so called top line growth strategy is to the detriment of shareholder value.
About 3 months ago, I suggested that it might be a good idea to trade in AIOCF shares for AMBA shares when AMBA shares closed at $73.28 while AIOCF shares closed at $13.63. Turns out that it would have been a very good swap. AMBA shares are up about 60% while AIOCF haven’t moved at all.
Chris
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