Mobileye NV (MBLY) stock is surging on Friday after Wall Street research firm Berenberg initiated the computer vision company with a “Buy” rating and a $51 price target. That implies a whopping 38.5% upside to Thursday’s $36.82 closing price.
MBLY shares were up more than 4% in morning trading.
Now, I will say, as I said yesterday, that investors should not just blindly latch to analyst upgrades, downgrades, initiations or price targets. Their motivations aren’t aligned with investors; a 2013 survey found that the profitability of their recommendations and the “accuracy and timeliness” of their earnings forecasts were the eighth- and ninth-most important factors in determining their compensation.
That said, analysts do have sway over the market, and there are other sound reasons to buy MBLY stock now. Let’s check those out.
MBLY Stock: Bullish Technicals
After today’s spike, Mobileye shares broke through an important technical level, the 50-day simple moving average. Right now, the 50-day MA is at $37.81, and MBLY is trading roughly $1 above that, around $38.72.
That’s all well and good, but the big question is whether Mobileye can break through its 200-day MA, which would indicate a longer-term bullish trend and could send shares rocketing higher. Shares are down 29% in the last year and boast a 52-week high of $64.48, so this stock certainly has room to get heated up in a hurry.
If you look at the chart, when MBLY stock breaks through its 50-day in a bullish manner, it has been … bullish. We see that this happened in early March, and shares rallied from around $33 to highs around $41 per share on April 21.
Longer-term, there are several reasons to buy MBLY. At its core, Mobileye is essentially a bet on the future of self-driving cars, which are definitely happening whether we want them to or not. The software that allows cars to actually see and subsequently maneuver the busy and dangerous streets of America (and eventually the world) is a pretty important component of the autonomous future, after all.
Sure, shares look perhaps just a wee bit pricey at 113 times earnings, but analysts are confident earnings will pick up dramatically over the years. Last year, adjusted earnings per share were 48 cents; by the end of fiscal 2017, that’s expected to reach $1.06.
When you factor that in by looking at the forward price-to-earnings multiple, MBLY stock looks much more reasonable at 36.4 times next year’s earnings.
While that’s not exactly cheap either, what do you honestly expect a hyper-growth company like Mobileye to trade for? This is a company that had sales of $240 million in 2015 — only four years earlier, it was $19.2 million. Revenues are expected to keep soaring at incredible rates for the foreseeable future, jumping 40.8% this year and 45.5% next year.
You simply can’t ever expect to pick up MBLY stock at metrics that make it look cheap. It’s a growth dynamo. Now seems like a prime time to get in on it with bullish technicals and favorable analyst sentiment.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at email@example.com.