Ambarella Inc (NASDAQ:AMBA) has been rising steadily in 2016, with AMBA stock doubling since its February lows. And while the stock left many investors in tears after its 2015 fall from grace, there’s reason to expect the current rally to continue as Ambarella earnings drop today.
The tech company is poised to report earnings after the bell, and it should be a doozy based on strong volume coming into the report and a run of about 25% in the last 30 days.
The narrative for AMBA stock has long been about its relationship with GoPro Inc. (NASDAQ:GPRO), the extreme sports camera company uses its HD video solutions and is a key factor in Ambarella earnings. GoPro’s cameras are reportedly worth about a third of its revenue from the relationship. The fact that GoPro stock beat in both Q1 and more recently in its Q2 earnings, that could signal a nice tailwind for Ambarella earnings and AMBA stock today.
It’s also worth noting the imaging company has taken strides to decouple from GPRO stock in the long-term, with that percentage down in recent quarters from its 2015 peak of more than half of its sales coming from GoPro.
Personally, I am excited about the possibility of Ambarella in the age of drones since it’s a leading provider of mobile video and HD technology that is a key part of many commercial applications for the unmanned aircraft. Some estimate as much as 600,000 drones filling the sky within a year thanks to newer and easier registration requirements. Long-term, Ambarella certainly will have a place in the world of drones — with or without GoPro.
Of course, we shouldn’t get too far ahead of ourselves with AMBA stock and today’s Ambarella earnings report. Right now, it’s all about sentiment and all about the charts — and with shares trending higher after a strong golden cross in July showing the 50-day average busting through the 200-day with gusto, it has been folly to bet against Ambarella in the short term.
That will remain true today, particularly given that shares are already rallying pre-market. Short interest has remained elevated despite the big run in 2016, and as of mid-August there were still just shy of 7 million shares held short — over eight days of trading at current volumes.
Small wonder the bears are looking to cover their positions, because this could be a big short squeeze for AMBA stock after a strong earnings report to follow GoPro results previously.
Buy before Ambarella earnings and ride this rally.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
