Ambarella (AMBA): The Best Growth Stock You’ve Never Heard Of

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You’ve probably never heard of Ambarella Inc (AMBA). If you have, you probably didn’t know about it a year ago. And anyone brainy enough to know about AMBA stock two years ago — and gutsy enough to have invested in it — is probably having their butler read this to them from the comfort of their own private beach.

ambarella inc amba best growth stock youve never heard ofAlthough today most people know Ambarella stock only by virtue of its association with Wall Street’s newest growth darling GoPro Inc (GPRO), AMBA’s growth opportunities dwarf GoPro’s.

They always have.

Ambarella went public to little fanfare in October 2012. At the price of $6 a share, Ambarella was worth $155 million by Wall Street’s estimation. Two years later, AMBA stock trades at all-time highs above $50 a share and the company is worth roughly $1.5 billion by market capitalization.

Ambarella: The Secret Sauce Behind GoPro

GPRO stock went public in late June at $24 per share. GoPro soared more than 30% on its first day of trading, and within a week the stock had doubled. A new star was born.

While traders and investors have scrambled to pile into the sexy wearable camera-maker, the Santa Clara company that makes the amazing GoPro videos possible still remains anonymous to mainstream America.

I write about stocks for a living and didn’t know the company existed until last year. When I found out about it, I did some research and bought in immediately.

Ambarella is the exclusive supplier of GoPro’s system-on-a-chip technology that enables the cameras to record 4K ultrahigh-definition video at up to 30 frames per second, using a fraction of the power and storage requirements of rival chips. But some analysts estimate sales to GoPro — which saw revenue spike by 87% in 2013 and is projected to see sales grow by 35% this year — account for just 25% to 30% of AMBA’s total revenue.

Thus, when it went public, Ambarella was the purest way to invest in GoPro, which made an amazing product that I saw was rapidly gaining in popularity.

But AMBA stock is far more than a derivative bet on GPRO.

AMBA Is at the Helm of Multiple Growth Industries

Ambarella is tapping (or soon will tap) into several other markets with massive long-term potential:

  • Internet Protocol Security Cameras: Estimated to be about 45% of Ambarella’s business, IP security cameras are a rapidly growing market. Unlike traditional video cameras that record and store information, IP security cameras record and transmit data simultaneously across a network. The images are better than traditional CCTV video, and the video can be compressed for less demanding storage.
  • “Backup cameras” in automobiles: Back in March, the National Highway Traffic Safety Administration passed a rule that, beginning in May 2018, will require all new vehicles under 10,000 pounds to have “rear visibility technology,” or cameras that show video from the back of a car. The average weight of a car is around 4,000 pounds, so that’s a pretty inclusive mandate.
  • Drones: Demand for high-quality, low-power video chips can be found in the skies, too, and according to aerospace and defense market research firm Teal Group, commercial and military spending on drones could reach $11.5 billion annually by 2024. That’s excluding the quirky drone geek niche, but I doubt that segment will contribute meaningfully to Ambarella’s financials anyway.

When you consider that this small-cap chipmaker has exposure to not just one exciting growth industry but a handful of them, it’s almost as if AMBA was custom built by a mad Wall Street scientist to be the perfect growth stock.

Unless Ambarella starts posting severe revenue misses and divests itself of its unique growth opportunities, AMBA stock still has plenty of room to run in the years ahead.

As of this writing, John Divine was long Jan 2015 AMBA $20 calls and Jan 2016 AMBA $25 calls. You can follow him on Twitter at @divinebizkid.


Article printed from InvestorPlace Media, https://investorplace.com/2014/11/ambarella-inc-amba-best-growth-stock-youve-never-heard-of/.

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