I have been bearish on Mobileye (MBLY, Financial) for quite some time, recommending investors to short the stock multiple times over the last few months. My bearish stance has led to terrific profits as shares of the company are down considerably over the last three months.
Despite the downfall, I think Mobileye is still massively overvalued and can still fall at least 60% before bottoming out. Thus, investors should continue betting against the stock for at least a few more months.
Slow growth is a red flag
Mobileye commands a market cap of over $7.23 billion, but in the last quarter the company generated revenue on roughly $73 million. I am not a fan of sequential comparisons; however, given Mobileye’s towering valuation, you would expect the company to grow its sales considerably in every quarter.
That has not been the case for Mobileye as its revenue was almost flat in the latest reported quarter as compared to the previous quarter. What makes the matter worse is the fact that analysts are expecting Mobileye to post sales of about $73 million. Even though the sales will be about 61% higher as compared to the corresponding quarter of the previous year, a company as richly valued as Mobileye should be growing its revenue every quarter.
Valuation cannot be justified
The points mentioned above paint a good picture of Mobileye’s overvaluation. With annual sales of under $250 million, Mobileye is trading at a P/S ratio of almost 31. In addition, the company’s trailing P/E ratio stands at a staggering 116.
Mobileye depends purely on the widespread deployment of the driverless car technology. However, I think the technology is still years, if not decades, away from coming to fruition, which is why I think shares of Mobileye are highly overvalued.
Final words
With flat sequential growth for three successive quarters, shares of Mobileye are definitely overvalued. The driverless car hype has pushed the company’s shares to towering valuations. Given that the technology is still years away from becoming mainstream, I think Mobileye’s valuation is ridiculous and investors should short the stock.
I expect the Mobileye’s shares to fall to under $15 within the next 12 months. I am still extremely bearish on the stock and I strongly believe a short seller can profit almost 60% by shorting the stock.
