Why Ambarella Inc Stock Plunged Today

By Markets Fool.com

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What's happening:Shares of Ambarella were down 15% as of 10:45 a.m. Monday, continuing last week's sell-off after short-seller Citron Research referred to the HD video processing chip company's valuation as "ridiculous," assigning a $60 price target on its shares. The stock closed Thursday at $126.70.

Why it's happening:Citron didn't stop there with the colorful language on Friday, saying that Ambarella's "parabolic frenzy has now launched it into a realm that can't possibly be supported by reality." Citron further fears Ambarella's products will ultimately face risk of commoditization, leaving the stock trading at much lower multiples, similar to other chip-making peers.

To be fair, even after today's drop Ambarella stock has more than doubled so far in 2015, and trades at a seemingly lofty 52 times trailing-12-month earnings. But it also looks much more reasonable at around 28 times next year's estimates. And Ambarella has shown a propensity for trouncing expectations in recent quarters, with growth supported by much more than just its key relationship with GoPro.

In the end, while it's hard to blame investors for taking some of their quick gains off the table, I also wouldn't be the least bit surprised if Ambarella resumes its upward climb from here.

The article Why Ambarella Inc Stock Plunged Today originally appeared on Fool.com.

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Steve Symington owns shares of Apple. The Motley Fool recommends Ambarella, Apple, and GoPro. The Motley Fool owns shares of Ambarella, Apple, and GoPro. 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.