Why This Wall Street Firm Is Cautious On Ambarella

Small-cap semiconductors developer Ambarella Inc (NASDAQ: AMBA) has been subject of plenty of discussion recently. The company was put in the spotlight after Chinese smartphone company Xiaomi launched a wearable action camera that offers features that are very similar to those of the GoPro Hero camera, but retails at half the price.

More recently, on Tuesday afternoon, the company reported strong results.

Related Link: Xiaomi's $64 Camera Burns GoPro, But Boosts Ambarella

In a report rolled out Thursday, analysts at Chardan commented on the results, upgraded the stock to a Neutral, boosted their price target from $40 to $60 and raised their estimates.

Impressed by the consensus beating results and guidance, the firm commented that Ambarella's stock has "simply defied conventional valuation metrics even as AMBA management has continued to execute flawlessly. Having expanded its customer base beyond GoPro (GPRO-NR) to Xiomi and others and successfully entering newer markets such as the Drone segment and consumer security markets even as its core IP camera market remains robust, we had simply underestimated the potential for this company's products when we had begun coverage on this stock 15 months ago.

"While higher inventories and declining margin profile is concerning, we do not see a near term Sell thesis for this stock." Consequently, the analysts changed their rating to Neutral. However, given the fact that the stock has almost doubled in price over the past year, the firm remains cautious on further upside.