Why Ambarella, Inc. Stock Jumped 15.2% in October

MarketsMotley Fool

What happened

Shares of Ambarella Inc. (NASDAQ: AMBA) popped 15.2% in October, according to data from S&P Global Market Intelligence, after an analyst upgraded the video processing chip specialist.

Continue Reading Below

More specifically, Ambarella's gradual rise last month started in earnest with a 6% pop on Oct. 12, when Canaccord Genuity analyst Matt Ramsay maintained his "buy" rating on the stock and increased his per-share price target to $65 from $58. For perspective, Ambarella stock closed on Tuesday at $54.68 per share.

So what

To justify his increased bullishness, Ramsay argued that the market has undervalued Ambarella's growth potential, its engineering talent, and its intellectual property surrounding computer vision technology.

"We believe now is the time for long-term investors to build positions in Ambarella shares," he added in a note to clients.

Now what

Ambarella has certainly endured more than its fair share of headwinds of late. With its fiscal second-quarter report in early September, Ambarella reduced its outlook to call for full fiscal-year revenue to decline in the range of 3% to 7%, down from flat year-over-year sales previously. For that, the company blamed a combination of weakness in the drone market, where Tier 2 customers are increasingly choosing cheaper chips, and lower-than-expected growth in the virtual-reality market.

At the same time, Ambarella was quick to remind investors that it's still enjoying solid growth from its IP security and OEM automotive segments. And speaking to Ramsay's upgrade, Ambarella's leading customers are set to start sampling its first computer vision chip, appropriately named "CV1," starting in its fiscal fourth quarter. If those customers' collective response is positive, it could be just the spark Ambarella needs to return to sustained, profitable growth, and to reward shareholders in the process.

10 stocks we like better than AmbarellaWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Ambarella wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 6, 2017

Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ambarella. The Motley Fool has a disclosure policy.