Why Invest in Ambarella Inc (AMBA)?

Ambarella Inc (NASDAQ:AMBA)  is a relatively unknown sub-$900 million business, despite its innovative leadership in a booming technology field. However, a recent partnership with Google Inc (NASDAQ:GOOG has helped put Ambarella Inc (NASDAQ:AMBA) on the map and push the stock up more than 30% in December alone. Despite this bump in share price, Ambarella Inc (NASDAQ:AMBA) is slated to beat the market over the next five years and beyond.

A leader in “enabling technology” 
Ambarella Inc (NASDAQ:AMBA) develops small, high-definition video semiconductors. Ambarella Inc (NASDAQ:AMBA) is considered an “enabling technology” business, providing the video chip infrastructure needed for wearable sports cameras, Internet Protocol security cameras, and automotive cameras. Video semiconductors from Ambarella Inc (NASDAQ:AMBA) enable the capture, sharing, and display of HD video from small, powerful cameras.

Research firms, including Berg Insight and Juniper Research, anticipate rapid growth in the field of wearable technology. Berg Insight projects sales of wearable technology devices to increase by over 50% annually to 64 million units in 2017. Wearable technology sales are estimated to reach $1.4 billion in 2013, and Juniper Research expects this number to increase to $19 billion by 2018.

Ambarella Inc (NASDAQ:AMBA)

Motley Fool analyst David Meier notes that Amberalla’s three primary operating segments — wearable sports cameras, IP security cameras, and automotive cameras — are all seeing noticeable growth rates:

Ambarella Inc (NASDAQ:AMBA)’s three main markets are all growing quickly: wearable sports cameras, made up mainly of sales to GoPro, at 59% per year; Internet Protocol security cameras, at 58% per year; and automotive cameras, at 77% per year.

Innovative and dedicated management
Ambarella Inc (NASDAQ:AMBA) was co-founded by three individuals in 2004: Feng-Ming Wang, Les Kohn, and Didier LeGall. Wang remains CEO, Kohn serves as chief technological officer, and LeGall serves as executive vice president. What is notable is this team’s continued innovation and the culture developed by these leaders.

In addition to the U.S., Ambarella Inc (NASDAQ:AMBA) has design and manufacturing centers in China, South Korea, Japan, and Taiwan. “Our strength is our mix of Silicon Valley and Asian cultures,” says EVP LeGall, “leveraging the expertise of each continent to create a bridge to our customers.”

Ambarella Inc (NASDAQ:AMBA)’s status as a global innovator has earned recognition over the past three years. The Global Semiconductor Alliance honored Ambarella Inc (NASDAQ:AMBA) as the “Favorite Analyst Semiconductor Company” of 2013, selected by semiconductor financial analysts from firms such as Morgan Stanley (NYSE:MS).

Prior to going public in 2012, Ambarella Inc (NASDAQ:AMBA) was also honored by the Global Semiconductor Alliance as the “Most Respected Private Company” in 2010, 2011, and 2012. This award is given to the private semiconductor company “garnering the most respect within the industry in terms of its vision, products and future opportunity.”

Ambarella Inc (NASDAQ:AMBA)’s recognition from peers and industry analysts (despite only four analysts following the company on a quarterly basis) should not be ignored. Investing great Peter Lynch said, “Nothing could be more bullish than begrudging admiration from a rival.” Perhaps Ambarella Inc (NASDAQ:AMBA) is a true Lynchian investment.

Strong financial growth and reasonable valuation
Ambarella Inc (NASDAQ:AMBA) is marking impressive increases in financial growth. So far in 2013, Ambarella Inc (NASDAQ:AMBA)’s operating cash flow has increased over 150% from 2012 to $22.93 million. The company has seen revenue increase 31% to $89.5 million, with earnings up 38.6% from 2012 to $20.1 million. Ambarella Inc (NASDAQ:AMBA) has $128.05 million in cash with no debt, providing sufficient financial cushion for the company to continue its innovative streak.

A fledgling partnership with Google Inc (NASDAQ:GOOG) could bode very well for Ambarella Inc (NASDAQ:AMBA)’s future. Ambarella Inc (NASDAQ:AMBA) is developing a wearable camera that Google Inc (NASDAQ:GOOG) will utilize for Helpouts, a new Google Inc (NASDAQ:GOOG) platform for interactive classes. Helpouts will use live streaming video, made possible by Ambarella Inc (NASDAQ:AMBA)’s video semiconductor technology. “With easy-to-use wearable cameras, the other person sees what you see, and the interaction becomes efficient and simple,” explains Udi Manber, vice president of engineering at Google Inc (NASDAQ:GOOG).

Even after its recent run-up, Ambarella Inc (NASDAQ:AMBA) shares still trade at a P/E around 40. This is a reasonable value for a business growing sales at 25% and with a net income over 30%, especially considering the tremendous growth potential for Ambarella Inc (NASDAQ:AMBA)’s three primary segments.

Foolish bottom line
Ambarella Inc (NASDAQ:AMBA) will likely be volatile, as should be expected with a growth company valued under $1 billion, but a long-term outlook will help investors stay focused throughout shortsighted market movements.

Because of the company’s experienced and dedicated leadership team, continued product innovation in a rapidly growing field, and solid financial growth, Ambarella Inc (NASDAQ:AMBA) looks to be a solid long-term investment choice.

The article Why Invest in Ambarella? originally appeared on Fool.com.

Fool contributor David Kretzmann owns shares of Ambarella Inc (NASDAQ:AMBA). You can follow David on his Foolish discussion board, Pencils Palace, on CAPS, or on Twitter @David_KretzmannThe Motley Fool recommends Ambarella Inc (NASDAQ:AMBA) and Google Inc (NASDAQ:GOOG). The Motley Fool owns shares of Google Inc (NASDAQ:GOOG). 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.

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