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Even though Mobileye NV (NYSE: MBLY ) is in the hot market for automated and autonomous driving systems, this does not seem to matter much. Keep in mind that there is quite a bit of skepticism about the company's prospects. And this has taken a toll on MBLY stock, which is off by 25% since late August.
Source: U.S. Embassy Tel Aviv via Flickr
Some of the bearish sentiment is actually downright apocalyptic. Just look at Global Equities Research's Trip Chowdhry. In a research note , he predicted that MBLY stock is headed for a collapse next year because of the intense competition from players like Autoliv , Nextchip and Continental . In fact, he thinks the market cap of MBLY stock could plunge to as low as $500 million. If so, this would translate to a price of a couple bucks a share!
Scary, right? Definitely. But all this really looks overblown. The fact is that Mobileye has some key advantages, which should help drive long-term grains.
So here's a look at three factors:
Reasons to Buy MBLY Stock: The Massive Market Opportunity
When it comes to the future of technology, the auto market is definitely ripe for growth. Let's face it, one of the main drivers is safety. According to The World Health Organization, there were about 1.25 million deaths on the world's roads in 2015 and auto accidents cost governments about 3% of GDP. So yes, technologies can make a big difference.
Keep in mind that over 90% of auto accidents are the result of human factors.
In light of this, MBLY estimates that the market for Advanced Driver Assistance Systems ("ADAS") will hit about $4.5 billion within the next few years .
But of course, the biggest opportunity is with autonomous driving. As an indication of the importance of this market, the U.S. Department of Transportation has a budget of roughly $4 billion for the adoption of this technology (this is for the next ten years). Interestingly enough, a study from the ENO Center for Transportation suggests that if even 10% of the cars on the road were autonomous, 211,000 accidents a year could be avoided.
What about the size of the opportunity? Well, Mobileye estimates that it could be $15 billion within the next few years - in terms of demand for the company's camera-based systems.
Reason to Buy MBLY Stock: Deep Experience
MBLY is the pioneer of auto technology systems, with the company's roots going back to 1999. Since then, it has continued to innovate, such as with computer vision, machine learning, localization, mapping and data analysis.
It's also important to note that the company has the advantage of going through extensive regulatory processes - across the globe. MBLY technologies are embedded in cars from 25 automakers, for about 9.7 million total vehicles.
But another key is that the company has been savvy with its partnerships. And perhaps the most notable one came recently, involving Intel Corporation (NASDAQ: INTC ), BMW and Delphi Automotive PLC (NYSE: DLPH ). The goal is to launch autonomous cars by 2019. To this end, the strategy will be to leverage low-cost systems - such as cameras and radars - which should help capture a bigger piece of the market.
Something else: The partnership is definitely a major validation of MBLY's technology. In other words, this should provide some doubt as to the doom-and-gloom of analysts like Chowdhry.
Reasons to Buy MBLY Stock: Buyout Potential
Given the enormous market opportunity for auto technology, it should be no surprise that M&A activity has been torrid. Just some of the recent deals include Samsung 's (OTCMKTS: SSNLF ) $8 billion acquisition of Harman International Industries Inc (NYSE: HAR ), which has key assets in software systems and components for autos, as well as Qualcomm, Inc. 's (NASDAQ: QCOM ) $39 billion deal for NXP Semiconductors NV (NASDAQ: NXPI ), which boasts an extensive business in semiconductors for the auto industry.
But automakers like Ford Motor Company (NYSE: F ) and General Motors Company (NYSE: GM ) have also been ramping their dealmaking. Hey, GM CEO Mary Barra has noted : "We're going to disrupt ourselves, and we are disrupting ourselves, so we're not trying to preserve a model of yesterday."
So yes, MBLY could be an attractive target for a buyout. Again, the company has a strong set of assets, top-notch partnerships and solid financials. In the latest quarter , revenues jumped 34.4% to $94.9 million, and the company reported an adjusted profit of 19 cents per share.
Of course, there are no shortage of potential suitors, which include biggies like Alphabet Inc (NASDAQ: GOOG , NASDAQ: GOOGL ), Apple Inc. (NASDAQ: AAPL ) and INTC.
Tom Taulli runs the InvestorPlace blog IPO Playbook and also has his own tax preparation firm . Follow him on Twitter at @ttaulli . As of this writing, he did not hold a position in any of the aforementioned securities.
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