Ambarella and GoPro are Still Short Candidates

I’ve never been a fan of momentum stocks that are driven by hype and have terrible metrics with little to no promise of future growth. Rather than buying and holding, investors can make a huge profit by shorting these kinds of stocks. The description reminds me of the 3D printing sector. I have recommended investors to short these stocks multiple times over the last two years, and all the stocks in the industry are considerably lower from the time I recommended shorting them.

With the stocks near all-time low, 3D printing is a thing of the past.

The stocks that remind of 3D printing in the present market are GoPro (GPRO) and Ambarella (AMBA). Although my long call on Ambarella resulted in over 231% annual gains, I think the stock is overvalued (despite falling over 50% from all-time highs).

Like 3D printing, both Ambarella and GoPro have analysts roaring for the stocks. Despite the fact that both the stocks are way ahead of their fundamentals, analysts are calling for investors to buy these stocks on the pullback. Given the 60%+ demise of both the stocks, investors may be incorrectly calling a bottom. However, investors fail to realize the threat of increasing competition. The presence of brands Sony and Ion are long-term headwinds for GoPro. Being GoPro’s supplier, Ambarella is vulnerable to these threats as well. Both Ion and Sony have lesser market shares than GoPro, meaning the companies will be gunning to damage GoPro’s position as the market leader. The risk of increasing competition is nicely highlighted in an article by The article states:

“The company has slashed prices 25% on its HERO4 Session camera, yet did not revamp its high-end product line. What’s more, the new Hero+, a mid-range camera with built-in Wi-Fi and Bluetooth features, may be a bust because it cannibalizes what would otherwise be high-end sales.

Sony and Ion are charging hard, and with market share that’s presently estimated to be 8% and 12%, respectively, according to Market Realist, that suggests GoPro’s 47.5% market share will drop. Apple has recently upgraded its phone to shoot higher-resolution video, and that has the GoPro fan club’s selfie sticks trembling.”

Increasing competition will have a negative effect on GoPro’s margin going forward. GoPro already has a market share of over 47%, so it will be difficult for the company to grow any further due to the intense competition. All things considered, I think both GoPro and Ambarella have 45% downside potential, making both the stocks ideal for shorting.


Despite the massive drop, both GoPro and Ambarella are trading at a premium. While the sentiments surrounding the stock are positive thanks to multiple positive articles and analysts’ upgrades, I think both these stocks hold 45% downside potential. I am having a déjà vu as the situation has 3D printing written all over it. Thus, I think investors should short both the stocks.

Published on Oct 16, 2015
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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