Why Mobileye is a Screaming Short

Shorting hyped stocks can be a great way to make money. In the past, I have recommended investors to short many hype-driven stocks like 3D Systems, Stratasys, Yelp, Pandora, etc. Opportunities like these arise every year, and a stock that I believe possesses significant downside this year in Mobileye (MBLY). For those of you who don’t know, Mobileye designs and develops software and related technologies for camera-based advanced driver assistance systems (ADAS) primarily in Israel.

Mobileye has risen to fame thanks to excessive bullish coverage from Morgan Stanley and as a result, the company has a market cap of over $10 billion.
While Mobileye did make a breakthrough in the ADAS industry, the company’s overvalued. The company does supply to Tesla, but that has further added to the hype. Given that Tesla only sells a few thousand cars annually, having Tesla as a customer won’t help Mobileye justify its stretched valuation. Being an early mover in the ADAS space, Mobileye’s stock has appreciated greatly due to the hype surrounding the self-driving car market.

However, the company has no early movers advantage per say as it hasn’t registered any patents on ADAS. At least with 3D printing, companies in the space had many patents that restricted the entry of new competitors. But given that Mobileye has no patents and has no superior technology, the company is extremely prone to increasing competition. Moreover, the company has done nothing to sustain or justify its current valuation, making it a definite short candidate.

In addition, insiders have been cashing in on the overvaluation. As highlighted by Citron, insiders of Mobileye have sold over $1.6 billion in company stock since IPO at an average selling price of $33.14, which is about 40% lower than Mobileye’s current share price. Clearly, investors don’t believe Mobileye will sustain the valuation in the long-term and have decided to cash in on the stock, pocketing millions of dollars. While Mobileye’s share price has increased considerably in the last twelve months, I think investors would be better off shorting the stock.


The company is currently trading at 1,022 times trailing earnings, and given that it has made no significant headway in the ADAS space, the valuation is too steep. In addition, the P/S ratio of Mobileye stands is over 61. No matter how you look at it, the stock is very expensive. Self-driving cars is years away, if not decades, from becoming mainstream, which is why paying a premium for Mobileye doesn’t make sense. Once investors realize Mobileye’s true potential and the threats of increasing competition, the stock will crash. Thus, I think Mobileye is one of the best short candidates in the market.
Published on Oct 22, 2015
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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