Mobileye Is Unbelievably Overvalued!

As someone who believes in dedicating a large portion of a portfolio to shorting companies, I have seen my fair share of overvalued stocks. However, Mobileye (MBLY) has to be one of the most, if not the most, absurdly valued stocks that I can find in the present market. I have been bearish on Mobileye for quite some time now and although the stock has moved lower since I published my first short thesis, I still think there’s still a lot of money to be made from shorting it and here’s why.

Valuation

As I have said time and again, Mobileye’s valuation is absurd.
The stock is unbelievably overvalued and is a no brainer short. Investors have bid up Mobileye in the hopes that it will conqueror the autonomous driving market, but I think the valuation is ridiculous no matter how you look at it. Given that the technology is still years away from becoming an everyday reality, Mobileye’s current valuation is unjustifiable.

The stock is trading 126 times trailing earnings, whereas its forward P/E ratio stands at almost 35. In addition, despite the fact that the company’s annual revenue is just $240 million, it commands a market cap of almost $8.1 billion.

Given the illogical valuation, it is no surprise that insiders are cashing in on it and dumping the stock in the open market. Insider selling, coupled with high valuation and hype, paint a very grim picture of Mobileye’s future. Usually, when heavy insider selling coexists with hype-driven high valuation, you can be certain that shares of the company will fall in the future. In case of Mobileye, I expect the shares to fall drastically.

My price target for the stock is $7, which is over 80% lower from its current price. It is one of the best shorting opportunities that investors can hope for, and I really believe the stock will be trading in single digits in 12 months to 18 months.

Conclusion

The recent spike in Mobileye’s price is unjustifiable. However, being an optimist, I think investors should see this uptick as a shorting opportunity. Saying that Mobileye is overvalued would be an understatement as I believe the stock can fall as much as 80% in the next 12 to 18 months. Moreover, the strong insider selling also point toward the fact that Mobileye is destined to head lower, which is why I think investors should short the stock.
Published on Mar 18, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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