Canaccord On Ambarella: 'Finally, A Pullback!'

In a report published Tuesday, Canaccord Genuity analyst Matthew D. Ramsay reiterated a Buy rating and price target of $115 on Ambarella, Inc AMBA. There has been a sharp selloff of the company's shares. The analyst believes that the resultant pullback in the stock offers a buying opportunity. "While the stock has retreated, our long-term conviction has not. We maintain our belief Ambarella's portfolio of highly differentiated application-specific video encode, compression, and analytics processors positions the company for strong sales and earnings growth as HD and UltraHD video capture and compression become increasingly important across several consumer and enterprise markets," Ramsay stated. The analyst also believes that the company's investments in video analytics are likely to prove meaningfully undervalued in the long term. Ambarella appears well positioned to witness robust earnings and sales growth, driven by sales ramp in core markets to large customers, as well as strong sales in the emerging growth markets, such as drones and consumer security cameras in 2015. "We believe Ambarella video encode/compression processors are differentiated across three primary metrics: 1) video quality, 2) compression efficiency, and 3) lowest power," Ramsay said, while adding that "the move to HEVC compression and 4K resolution at higher frame rates will increase this differentiation." The analyst expects this differentiation give a competitive lead to the company, with metrics that would be sustainable in the medium term. This in turn would drive share gains as well as new customer wins, along with "design stickiness" of the current sole-sourced sockets.