Trade Your Ambarella and GoPro Shorts for These Two Stocks

It was just a few months ago that I gave GoPro (GPRO) a price target of $15 and Ambarella (AMBA) a price target of $40. When I set these price target, GoPro was trading at $28, while Ambarella was near $60. Both the stocks breached my price targets recently, and I think it’s time for investors to cover their short positions.

What Happened?

I called GoPro a short because of the increasing competition its susceptible business model. GoPro’s cameras were a fad and I knew it was only a matter of time before reality catches up to expectations, and yesterday it did.
GoPro announced that it expects to report Q4 revenue of $435M, way below prior guidance of $500M-$550M. The company blames weaker-than-expected camera sell-through at retailers, particularly for the first half of Q4.

In addition, GoPro is cutting 7% of its 1,500+-employee workforce, which is never a good sign for a supposedly growing company. Consequently, investors reacted badly to this news and as a result, GoPro’s shares lost 25% of their value in after-hours trading. Now that my short call on GoPro has resulted in almost 70% profit, I think it’s time for investors to lock in the gain by covering their short positions.

Ambarella, being a GoPro supplier, has unsurprisingly followed GoPro and is trading under $40. Given the company’s diversified business model, Ambarella downfall hasn’t been that bad. However, my short call has still resulted in a 50% profit and I think investors should close their short positions and book a hefty profit.

There are still more opportunities

The present market turmoil looks set to continue and I do think there are still many shorting opportunities available for investors. The market is still overvalued, and a few stocks in particular still can still be shorted. As of now, the two stocks that are way overvalued and present the best shorting opportunity are Wayfair (W) and Mobileye (MBLY). Both the stocks are trading at premium valuation. Wayfair’s illusion on growth and Mobileye’s hype due to its presence in the driverless car market have propelled these stocks to an absurd valuation and I think investors should short them.

Conclusion

I expect the market correction to continue and there’s a good chance that GoPro and Ambarella sustain their downward trajectory. However, I think the downside here is limited and investors can profit a lot more by shorting Mobileye (MBLY) and Wayfair (W). Hence, I think investors should cover their GoPro and Ambarella short and should short Mobileye and Wayfair at the current levels.
Published on Jan 18, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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