On Friday, CFRA raised its price target on Ambarella (NASDAQ:AMBA) shares to $60 from the previous $50 while maintaining a Hold rating on the stock. The adjustment follows Ambarella's announcement of its fiscal first-quarter performance, which included a narrower than expected loss per share (LPS) and a sales forecast that topped estimates.
The semiconductor company reported an LPS of $0.26 for the April quarter, which was better than the anticipated $0.31 consensus loss view. Although sales declined by 12%—aligning closely with expectations—Ambarella's revenue guidance for the July quarter is projected to be between $60 million and $64 million, surpassing the forecasted $59 million.
CFRA's updated 12-month target price is based on an enterprise value to sales multiple of approximately 7x, pegged to Ambarella's January fiscal year 2026 sales projection of $323 million. The firm has also adjusted its fiscal year 2025 loss per share estimate to $0.76 from $0.87, while maintaining the fiscal year 2026 loss per share at $0.05.
The positive outlook is partly attributed to the expected strong recovery in revenue during the second half of the calendar year. This optimism is driven by signs of normalizing customer inventories and new growth opportunities linked to Ambarella's inference portfolio, which is anticipated to see a 30% increase in fiscal year 2025.
Additionally, increasing demand from China within the automotive sector, potential market share gains in both automotive and Internet of Things (IoT) markets, and initial successes with Ambarella's CV3-AD products are contributing to the favorable outlook.
CFRA also noted that visibility into Ambarella's operations has improved, indicated by a rising backlog and more favorable lead times, now at 24 weeks. Ambarella's net cash position stands strong at $203 million. However, CFRA cautions that the company's exposure to China presents a potential risk factor.
InvestingPro Insights
As Ambarella (NASDAQ:AMBA) navigates through its fiscal challenges, InvestingPro offers a deeper dive into the company's financial health and stock performance. With a market capitalization of $1.98 billion, Ambarella holds more cash than debt on its balance sheet, a reassuring sign of financial stability. This aligns with the CFRA's note on Ambarella's robust net cash position. Additionally, the company's gross profit margin remains strong at 60.41%, highlighting its ability to maintain profitability on its products despite revenue declines.
An InvestingPro Tip to consider is that Ambarella's stock price movements have been quite volatile, which could be a point of consideration for investors looking at the stock's short-term performance. Moreover, 7 analysts have revised their earnings upwards for the upcoming period, indicating a potential shift in market sentiment that could bode well for future performance. For investors seeking a comprehensive analysis, there are 7 additional InvestingPro Tips available, which can be explored further with the use of the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
While Ambarella is not expected to be profitable this year, and the stock is trading at a high revenue valuation multiple with a P/E ratio of -11.4, the company's ability to exceed short-term obligations with liquid assets is a positive indicator of its operational resilience. As the company continues to navigate the competitive semiconductor landscape, these metrics and insights from InvestingPro can be invaluable for investors looking to make informed decisions.
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