Why Ambarella Stock Jumped 23% in March

By Markets Fool.com

AMBA Chart

Continue Reading Below

AMBA data by YCharts.

What: Shares of chipmaker Ambarella rose 22.8% in March, according to S&P Capital IQ data, as the company powered past analyst expectations when reporting its fourth-quarter earnings early in the month. It also added to gains on the back of analyst upgrades in the latter part of the month.

So what: For investors, March started off with a bang when Ambarella reported its fourth-quarter results on March 4. From a revenue perspective, the company grew 62% on a year-over-year basis by reporting $64.7 million -- topping analyst estimates of $59.4 million by nearly 9%. In addition, the company reported earnings per share during the fourth quarter of $0.68, topping analyst estimates of $0.49 by nearly 40%. The stock jumped nearly 7% that day as investors digested the good news.

The stock continued to rise as analysts centered on a growing market for Ambarella -- drones. Chardan Capital boosted its price target from $60 per share to $70 per share, saying that the company's camera chips could get a boost in the growing drone market. That sentiment was echoed by a Canaccord Genuity analyst at the end of the month after meeting with CEO Fermi Wang. Ambarella shares closed March trading at $75.71.

Now what: For Ambarella, the growth story continues, and it is good to see the company trying to find more uses for its camera chip business. As a leading supplier to action-camera maker GoPro, the company benefited by strong demand for GoPro's HERO line of cameras during the holiday season. Chief Financial Officer George Laplante noted that camera market revenue was 95% of Ambarella's fourth-quarter revenue compared with 90% in the previous year's corresponding quarter.

Continue Reading Below

By working to put its cameras in drones, a new and growing product, the company is looking to diversify and protect itself from a slowdown in the wearable-action-capture market if one should occur, but the company doesn't think that's happening anytime soon. According to CFO Laplante, the company expects next quarter's revenue to be 56%-66% higher than last year's corresponding revenue figure. Right now, Ambarella appears to be a high-growth play in its core markets, and a play on future technology.

The article Why Ambarella Stock Jumped 23% in March originally appeared on Fool.com.

Jamal Carnette owns shares of GoPro. The Motley Fool recommends Ambarella and GoPro. The Motley Fool owns shares of Ambarella. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.