Mobileye (MBLY, Financial) has shrugged off all valuation-based criticism and has continued moving higher. The stock has inched higher on the back of several positive catalysts. The company is well positioned to benefit from the autonomous car market and has taken several steps in the right direction as mentioned below.
Why Mobileye’s system is important
Mobileye uses its cameras and sensors to gather mapping data from cars and then upload it to the cloud. After uploading the data, the system crowd sources it to other vehicles.
The company’s system is titled as Road Experience Management (REM) and is designed in such a way that it can gather 10 KB of road data per kilometer. After collecting road data, it compares the data with other map data stored in the cloud, so that cars can judge where exactly they are, and then make appropriate decisions. Mobileye is presently gathering mapping data and strategies on introducing the overall system two years later.
Recently, Mobileye teamed up with Intel and BMW to develop a self-driving car. Furthermore, the companies together have strategized to ship the vehicle by 2021. Many companies are taking part in developing driverless cars as all the parts cannot be delivered by a single company.
In the driverless cars segment, Intel will play a most significant part by powering a brain for the vehicles. Intel said that it will use its Atom and Xeon processors for the driverless vehicles, and will also assimilate its cloud platform and machine learning systems. Moreover, the company’s processors will be used to calculate the data heavy surroundings which comprise numerous data points to compute. The company also publicized that its processors are designed to calculate massive amount of data efficiently.
On the other hand, Mobileye will offer its EyeQ 5 SoC for the driverless cars platform, together with machine learning algorithms and several sensing hardware. The company is formerly a rising frontrunner in semi-autonomous systems. Apart from this, the company’s technology is used by 90 percent of auto manufacturers.
It is certain that both Mobileye as well as Intel will face rivalry from NXP Semiconductors N.V, as it accounts for the biggest supplier of processors to auto manufacturers. NXP turned into a major player in the race just after its merger with Freescale Semiconductor that took place in 2015. However, as of now, Mobileye continues to be the leader in this growing space.
Conclusion
Although Mobileye has taken several steps in the right direction, the stock is still overvalued. At the current valuation, investors have priced in years of growth in the stock, thereby limiting the upside. To put into perspective, Mobileye is currently trading at 142x trailing earnings and has a P/S ratio of almost 40. Given that the autonomous car market technology is still in its nascent stages of development, it will take Mobileye years to even come close to justifying this valuation. In the meantime, the smallest bit of negative news can tank the stock. For this reason, I think Mobileye is not worth buying right now.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
Start a free 7-day trial of Premium Membership to GuruFocus.
