Option Trade
Ambarella Inc (NASDAQ:AMBA) Calls 
Monday, August 31, 2015

**OPTION TRADE: Buy the AMBA Oct 2015 110.000 call (AMBA151016C00110000) at approximately $4.50 (or lower if the market opens lower on Monday morning). Place a protective stop loss at $1.80, and a pre-determined sell at $8.50.

by Ian Harvey

August 31, 2015

Introduction

Ambarella Inc (NASDAQ: AMBA), a developer of semiconductor processing options for video that enable high definition, video capture, sharing and display, will report quarterly results on Tuesday, 1st September, after markets close. Ambarella is expected to post $0.85 earnings per share (EPS) for its fiscal second quarter, that would be up from a profit of $0.37 per share in the same period of last year. The Wall Street estimate is slightly less optimistic at $0.81 per share.

Revenue for the three months that ended in July is predicted to have jumped from $46.97 million in the year-ago quarter to $84.92 million, and again Wall Street is a bit more pessimistic. They both underestimated revenue in the previous quarter.

After breaking out from $70 in May and touching above $120 twice, shares of Ambarella pulled back. The stock is down due to the general fall in market sentiment. It is expected that the stock will rebound.

Technical Details

Shares of Ambarella will open $96.31 on Monday. Ambarella has a 12 month low of $33.35 and a 12 month high of $129.19. The stock has a 50 day moving average price of $108.67 and a 200 day moving average price of $87.40.

The firm has a market capitalization of $3.02 billion and a PE ratio of 49.29.

Earnings

Previous Earnings

Ambarella last posted its quarterly earnings data on Tuesday, June 2nd. The company reported $0.71 earnings per share for the quarter, topping the consensus estimate of $0.58 by $0.13. The firm had revenue of $71 million for the quarter.

During the same period in the prior year, the company earned $0.25 earnings per share. Ambarella’s revenue for the quarter was up 73.6% compared to the same quarter last year. On average, equities research analysts forecast that Ambarella will post $3.07 EPS for the current year.

Future Earnings

Ambarella's growth does not stop at drones and video cameras, a market GoPro (NASDAQ:GPRO) is operating in successfully. IP security, wearables, and the automobile aftermarket are all finding growth in the 20% to 30% range.

In Asia, where IP security is paramount, Ambarella demonstrated strong sales growth. It benefited as demand grew from Dahua and Hikvision, its leading customers.

Analysts Opinions

Ambarella was upgraded by equities research analysts at Vetr from a “hold” rating to a “buy” rating in a report released last Monday. The brokerage presently has a $106.42 target price on the stock.

The company has also been the subject of a number of other research reports:-

• Canaccord Genuity increased their price target on Ambarella from $120.00 to $122.00 and gave the company a “buy” rating in a research report on Wednesday, July 22nd.

• FBN Securities restated an “outperform” rating and issued a $110.00 price objective on shares of Ambarella in a research note on Wednesday, June 24th.

• Needham & Company LLC upgraded Ambarella from an “underperform” rating to a “hold” rating in a research note on Wednesday, June 3rd.

• Topeka Capital Markets raised their price objective on Ambarella from $75.00 to $105.00 and gave the stock a “buy” rating in a research note on Wednesday, June 3rd.

• Finally, Pacific Crest reaffirmed an “overweight” rating and issued a $123.00 target price on shares of Ambarella in a report on Friday, July 17th.

Six equities research analysts have rated the stock with a hold rating and eleven have given a buy rating to the company. Ambarella presently has an average rating of “Buy” and a consensus target price of $103.32.

Harvey’s Options Volatility Indicator

Conclusion

There is little reason to doubt that Ambarella will report growth in the range of 20% to 30%. The automobile aftermarket is strong and the company is expanding its market reach.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the AMBA Oct 2015 110.000 call (AMBA151016C00110000) at approximately $4.50 (or lower if the market opens lower on Monday morning). Place a protective stop loss at $1.80, and a pre-determined sell at $8.50.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



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