From Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) to Sirius XM Holdings Inc. (NASDAQ:SIRI), there are tons of companies looking to pioneer the connected car and self-driving market.
Let’s not forget automakers such as Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) that are pushing their own integrated smart technology like the latter’s OnStar roadside assistance service.
And if you believe the rumors, even Apple Inc. (NASDAQ:AAPL) wants to plant a flag in what some experts call the self-driving car market — “the new battleground” for high-tech companies that are fighting for new revenue streams.
Given all of the interest and speculation, it’s tough to ignore how important a company like Mobileye NV (NYSE:MBLY), which makes advanced driver assistance systems — known as ADAS — can become.
And this makes MBLY stock a solid way to play where the puck may be landing next.
It’s a new era. People want to do less thinking while driving and are looking for ways to reduce their insurance premiums. And Mobileye, whose technology includes collision-avoidance systems, will help them do that.
The company’s cameras and sensors, located in various parts of a vehicle’s chassis, can speak to software to warn drivers of possible hazard before they occur. Not to mention that automated braking technology allows reflex-deficient drivers (I won’t say distracted) to avoid wrecks.
How much would you pay for such a technology? It’s a question Google and Apple may be asking. I would be surprised if Elon Musk, CEO of Tesla Motors Inc (NASDAQ:TSLA) is not making the same inquiry.
The market has set a price — can Mobileye live up to the high expectations implied in MBLY stock?
At around $46 per share, MBLY stock is trading at 118 times this year’s estimates of 39 cents per share, or more than five times the S&P 500. And even based on fiscal 2016 estimates of 70 cents per share, the price-to-earnings ratop drops only to 66.
In other words, the market knows the potential of Mobileye and has priced MBLY stock based on that potential. There’s still the question of whether Mobileye can drive profits higher in the year ahead.
In that vein, the company’s first-quarter earnings results released Monday, which beat on both profits and earnings, was a solid start.
More important than the numbers, however, the company said its new flagship EyeQ4 chip won design positioning with both a U.S. and a European automaker. This means the company now has 13 automakers working with its products to make the connected car and self-driving car a reality.
And not only does the company expect seven more EyeQ3 launches later this year — which the company expects to contribute to earnings growth — Mobileye was confident enough to reiterate its 2015 outlook. The company is projecting earnings of 39 cents per share and revenue from $217 million to $218 million. This implies year-over-year earnings growth of 86%, while full-year revenue is projected to climb well over 50%.
Bottom Line for MBLY Stock
While the shares aren’t cheap, they’re not likely to get cheaper. Competitors are ceding ADAS as the industry standard. And with more automakers partnering with Mobileye, MBLY stock is poised to drive to $60 to $65 in the next 12 to 18 months, delivering gains of 20% to 30%.
At this writing, Richard Saintvilus held shares of AAPL.
