Despite the fact that Mobileye's (MBLY, Financial) revenue has fallen considerably over the last few years, the stock has appreciated close to 1,000% over the last four years. The primary reason for the surge has been the company's apparent potential in the connected cars market.
The automated cars market is expected to grow considerably over the next few years, and Mobileye is the only pure play investment in the sector so investors have hyped the stock. But does the hype have any reality? Let's find out.
Opportunities
Mobileye is mainly known for manufacturing camera technology, software and microchips for advanced driver assistance systems. With the help of this technology, vehicles can avoid collisions with pedestrians and other vehicles. This technology is leading the way for self-driving cars.
Recently, the company boosted its autonomous vehicle efforts with its new Road Experience Management system. This new system uses crowd-sourced from other vehicles, cloud-centered map data to allow vehicles to drive on their own.
On the other hand, according to Boston Consulting Group, it is expected that the market size of self-driving vehicles will reach approximately $42 billion by 2025. And the progress of autonomous vehicles is on its way to take off. As per IHS Automotive, 12 million fully autonomous cars will be retailed in 2035. Therefore, to achieve this target, it is necessary for major tech companies and automakers to focus on ADAS features. The company could gain advantage from this growth as well.
Moving onward
Mobileye’s management is focused on merging its technology with the automotive industry at the correct stride. Moreover, the company has secured its tactic and technology against the variation of feasible claims ranging from giant firms such as NVIDIA (NVDA, Financial) to some individuals flaunting their artificial intelligence and deep learning skills to improve technologies.
Mobileye’s robust argument is based on the structure of supplier and OEM relationships centered on the award process. If Mobileye successfully manages to surpass analyst forecasts for its unit sales to OEMs as it did throughout 2015, improved gratitude will most likely trail. Instability will still be a problem as challenges to Mobileye’s technology products will carry on, probably until the company reaches the $1 billion revenue mark, which has an objective date of 2019.
Conclusion
Although Mobileye's prospects look bright, investors should wait before buying the stock due to its expensive valuation. Investors have already priced in years of growth into the stock; it would be wise for new investors to wait for a much better entry point.
