Are Ambarella Holders Too Exhausted To Chase Solid Earnings?

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Ambarella, Inc. (NASDAQ: AMBA) reported its fiscal first quarter earnings after the markets closed Tuesday. The company had $0.71 in earnings per share (EPS) on $71.0 million in revenue, which handily beat consensus estimates from Thomson Reuters of $0.59 in EPS on $67.36 million in revenue. The same period from the previous year had $0.25 in EPS on $40.92 million in revenue. Revenue increased 73.5% from last year while gross margin increased to 64.8% from 62.7%.

The boost from this most recent earnings report serves to solidify how valuable Ambarella is to the GoPro Inc. (NASDAQ: GPRO) model and how valuable it could be to that industry as a whole. Considering Ambarella’s unique processor and software technologies, analysts have anticipated that Ambarella could have a sustained a substantial market share in core growth markets.

Recently, Ambarella was maintained as Outperform and the price target was raised to $96.00 from $78.00 at Pacific Crest. This call was based on two issues: solid GoPro orders and the possibility that Qualcomm might be interested in buying the company.

Fermi Wang, President and CEO of Ambarella, commented on earnings:

We enjoyed a strong first quarter with revenue up 73.5% from the same period last year. In addition to continued growth from our existing wearable, IP security and automotive video recorder camera markets, we see increased activity across a wide range of home monitoring cameras including models by U.S. service providers, as well as from quadcopters or flying cameras. We look forward to continued success, as we enable the next generation of intelligent HD and Ultra HD cameras.

Total cash, cash equivalents and marketable securities at the end of the first fiscal quarter was $235.2 million, compared to $155.6 million at the end of the same period last year.

Ambarella’s stock has been an inspirational story, not just in 2015, but even farther back. So far in 2015, the stock price has gained about 86%, but if we look even farther back the stock has gained over 260% in just the past 52-weeks.

All of those big gains could be the primary reason for a lackluster reaction from shareholders in the after-hours session after the earnings report. It might take a complete and utter blowout on earnings to really move the needle, or on the other hand it could be a case of buyers exhaustion because this stock has already ran so much.

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Based on this current year’s earnings Ambarella has a premium P/E ratio of 40 compared to Tuesday’s close.

Ambarella shares closed Tuesday down 2.9% at $91.75. In the after-hours trading session following the earnings report, shares were initially up 1.5% at $93.58. The stock has a consensus analyst price target of $80.91 and a 52-week trading range of $24.12 to $95.67.