Ambarella Stock Is CRIMINALLY Cheap, and I’m Buying (AMBA)

Investors should think of the stock market as a tool to use at their disposal. When it gives you an unbelievable deal on a stock, you take it.

ambarella-inc-amba-stock-185-2The Ambarella (AMBA) stock price, which is down more than 50% from its 52-week highs near $130 per share, is a prime example of just such a situation. To paraphrase the bearded, bulbous hip-hop artist Action Bronson: Opportunity be knockin’ / Time to let the lil’ sucker in.

For the uninitiated, AMBA is a chipmaker best known for its power-efficient HD video compression chips that go inside GoPro (GPRO) products. But Ambarella stock is far more than just a proxy for GPRO, and I remain bullish on the company and the stock — as I have been since late 2013.

Here’s why you should take a close look at AMBA and consider adding it to your portfolio, too.

More Than Just GPRO

Those who inspect the charts might note that AMBA stock has indeed acted as a proxy for GPRO over the past several months, and admittedly their correlation has been uncanny over that time.

In the past three months, both stocks are down about 40%, with many of the peaks and troughs matching up in a near-perfect synchrony. But that’s not exactly a bad thing; with GPRO shares trading at a forward P/E below 15 and a five-year PEG ratio of just 0.54, there are worse stocks AMBA could be pegged to. I happen to think that when GPRO announces earnings on Oct. 29, they’ll trump expectations and bring AMBA along for the ride.

But Ambarella is more than just a GoPro supplier — it has exposure to multiple lucrative and fast-growing markets like drones, IP security cameras, dashboard cameras, and 4K video. You’d be hard-pressed to find another small-cap semiconductor company with opportunity like that.

Of course, the most compelling thing about the AMBA stock price today is its dirt-cheap valuation. Trading at just 14 times forward earnings, Ambarella is expected to grow revenue by nearly 50% this year, as profits surge 56%.

Growth like that is hard to find anywhere in the stock market. But growth like that at just 14 times earnings? That’s nearly unheard of. It’s merely the sentiment of Mr. Market — who happens to be especially risk-averse at the moment — that’s keeping AMBA’s price down.

Me? I’m not waiting for Mr. Market to realize his mistake, so I’ll be adding to my AMBA position by week’s end.

As of this writing, John Divine was long AMBA stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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