Mobileye: the Best Short Candidate for the Earnings Season

Apart from Wayfair (W), Mobileye (MBLY) has been one of my favorite short picks of 2016. Although both stocks are down over 10% since my first short recommendation, I think both the stocks have a lot more downside left to offer.

I have already recommended shorting Wayfair heading into the earnings season, in this article, I will focus on Mobileye. Mobileye has held up well over the last few weeks, but my price target for the stock is $5. Mobileye is expected to report its earnings next month, however I think investors should initiate a short position right now.
Corporate profits are expected to fall almost 8% year over year this quarter, and falling profits can cause a severe market correction.

Given that Mobileye is one of the most overvalued stocks, I think investors should short it heading into the earnings season. Mobileye’s sequential growth has been almost nonexistent for the last two quarters and even if the company manages to beat the analysts’ estimate on sales in this quarter, its sequential growth will be less than 5%.

Due to the slow growth, I am confident that Mobileye will not be able to justify its ridiculously high valuation for a long time, thereby making it an ideal short for the earnings season. Analysts are expecting Mobileye to post earnings of $0.14 per share on revenues of $73.3 million. Mobileye’s last quarter revenue was just a little less than $73 million.

Although Mobileye is reporting strong year over year growth this year, the company will run into trouble next year. I don’t think it will be able to sustain its double-digit sales growth next year.

For a stock whose sequential sales growth has been flat for the last two quarters and is expected to stay the same for the upcoming two quarters as well, Mobileye is very expensive. With a trailing P/E of 36.74 and P/S ratio of over 35, Mobileye is ridiculously expensive.


Due to Mobileye’s expensive valuation, and my bearish stance on the stock market going into earnings, I think Mobileye is a great short at current levels. The company’s nonexistent sequential growth can cause the share price to crash and its results won’t be impressive even if it beats the earnings estimate by a small margin. Hence, I would recommend investors to initiate a short position in the stock.

Published on Apr 13, 2016
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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