New Highs: You Can’t Go Wrong with AMBA Calls

We continue our winning ways today in perfect oblivion to the trading down and the declining trend in the general market. If you have been paying attention to the market lately, you will be quick to observe that the general market direction is unpredictable; yet, some stocks are consistently trading northbound even as they make new highs.

I am paying special attention to tech stocks making new highs today and I am especially impressed with the momentum in Ambarella Inc. (NASDAQ:AMBA). Ambarella with its market capitalization of $1.25B is a developer of semiconductor processing solutions for video that enable high-definition (HD), video capture, sharing and display. The Company combine its processor design capabilities with its video and image processing, algorithms and software to provide a technology platform.

Surging to New Highs

AMBA Stockchart

The chart above shows how shares of Ambarella traded up 6.09% at 11:10AM EDT to make a new 52-week high of $42.00 per share. The stock has gained 56.26% within the last four months and it has made 8 new highs within the last one month. More exciting is the fact that the momentum has lifted the stock to trade at a 42.7% premium to its 200-day moving average of $29.43 and at a 30% discount to its 50-day moving average of $32.30.

Impressive Financials

One of the good reasons to be optimistic about buying Ambarella calls is the quality of the company’s financial performance. Ambarella delivered second quarter (Q2 2015) results about two weeks ago as presented in the highlights below:

  • The company reported revenue to $47.0M to mark a 24.6% improvement over revenue of $37.7M that was reported in the same period last year
  • Gross margin under generally accepted accounting principles (GAAP) came in at 65.0% compared to 61.8% from the same period last year
  • Non-GAAP net income for the second quarter was $11.9M, or $0.37 per share compared to net income of $7.7M or $0.26 reported in the same period last year

Confidently Optimistic Guidance

Ambarella outperformed analysts’ estimates and its own guidance in the second quarter and the company is aiming for higher outperformance in the third quarter. The company expects its third quarter revenues to be in the range of $60M to $64M, way above the consensus estimate of $51.7M.

In addition, the company expects non-GAAP earnings to be between $16M and $18M for the third quarter. There are also indications that GAAP earnings might come in at $13M to $14M or $0.49M to $0.56 to beat the analysts’ consensus estimate of $0.37 per share in the coming quarter.

How to Trade AMBA Calls

Ambarella is one of the stocks with the brightest prospects in the technology sector. More exciting is the fact that Ambarella’s products (chips) are used in consumer products with increasingly high demand such as GoPro. I am optimistic about Ambarella’s prospect in the third quarter and the full year; hence, I recommend buying AMBA calls. I have a $45 price target on the stock and I recommend buying the AMBA Jan 2015 43.000 call (AMBA150117C00043000) at an asking price of $3.50.

— Daily Option Alerts

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