On Wednesday, Ambarella Inc. (NASDAQ:AMBA) shares soared more than 19% following Tuesday’s impressive fiscal Q2 results. The company announced revenue and earnings after markets closed beating analyst expectations. Moreover, Ambarella’s fiscal Q3 revenue guidance also came in higher than the average Street forecast.
Ambarella posted fiscal Q2 non-GAAP earnings per share of $0.35, beating the consensus analyst expectation of $0.25. In addition, its GAAP EPS of -$0.20 also came in better than the average Street estimate of -$0.26, while revenue grew by 58.3% Y/Y to $79.3 million, $3.39 million better than analyst expectations.
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The company also issued a better-than-expected fiscal Q3 revenue guidance in the range of $88 million to $92 million, compared to the Street estimate of $78.54 million.
Is it time to invest in Ambarella shares?
From a valuation perspective, the AMBA stock seems steeply priced at a forward P/E ratio of 82.20. Moreover, analysts expect earnings per share to fall by 27% this year before rising 34% next year, making it less attractive to value investors.
However, they also expect Ambarella’s bottom line to grow at an average annual rate of about 77.65% over the next five years, making the stock an exciting option for growth investors.
Therefore, although the stock seems substantially overvalued, its growth prospects could provide a significant boost to the price. Thus, it could be a good time to buy AMBA shares ahead of its exciting growth story.
Is there room left to run after spiking to overbought conditions?
Technically, Ambarella shares seem poised for a pullback following Wednesday’s sharp spike. However, the stock is yet to hit the key resistance level at around $129.00 per share despite crossing to overbought conditions.
Therefore, investors can target extended gains at around $129.13 or higher closer to the current 52-week high of $137.00, reached earlier this year. On the other hand, if the stock pulls back as inevitably expected, it could find support $117.03 or lower at $107.54.
Bottom line: Why buy Ambarella’s rebound?
In summary, although Ambarella shares appear to have recently spiked to overbought conditions, the bulls retained control on Wednesday, with just a slight pullback from the intraday high.
Moreover, with investors expecting significant earnings growth from next year, AMBA may continue to soar. Therefore, it may not be too late to buy the rebound ahead of the company’s exciting growth story.
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