Mobile NV ( MBLY ) shares have had their ups and downs this year, and they remain down by nearly 13% year-to-date as investors weigh the company's place in the autonomous driving market. This is undoubtedly the hottest segment of the auto industry, so the company has great potential, although some argue that there are better plays in the business. Indeed, Citron Research even went so far as to say last month that it's worth only $11 per share.
Mobileye Maintaining Market Share
In a report dated May 22, Deutsche Bank AG (USA) ( DB ) analyst Rod Lache revealed the details of his team's visit to the company's headquarters in Jerusalem. He has a "buy" rating and $72 per share price target on Mobileye stock and notes that major players in the auto market perceive the company as being on the cutting edge in autonomous market. He adds that he himself has been impressed that it has been able to sustain its competitive position in "lower end ADAS functionality."
Among the drivers of Mobileye's success are cost advantages, flexibility through low costs on low-end applications but also offering higher options and trim levels in software, and tactical decisions like value-added functions, including sensor fusion, which is basically offered free, thus saving automakers money.
What Wall Street Needs to Become More Confident in Mobileye
Lache believes the auto component supplier can sustain its strong position because of how automakers see it as being the market leader in technology. He said that at the Israeli Tech/ Mobility Ecosystem, Mobileye and others told him that automakers' intensity in autonomous driving is accelerating. They expect this technology to evolve faster than most expect with the first Level 4 Autonomous Vehicles hitting the road in or around 2019 and be less expensive than most expect. Mobileye expects Lidars to be priced between $50 and $100, while analysts have been predicting $250 to $2,500 for these components.
The Deutsche Bank analyst explained that investors have generally been concerned about the company's statements that it has a 100% win rate, which sounds too good to be true. Although Mobileye doesn't hold 100% of the market (it has a 90% share), investors see this as a sort of "self inflicted [sic] trap," he said, "which will be triggered when they eventually lose something."
He adds that there aren't many data points to help project trends in the business, although he believes this concern is already reflected in the company's stock price. He also believes this is an addressable issue. Among the catalysts he believes will increase confidence on Mobileye are the addition of more automakers to REM, new opportunities for revenue, average selling price upside, and more transparency.
Should Investors Take NVIDIA over Mobileye?
In a post on The Motley Fool , Leo Sun sargues against the auto component supplier being a good bet in autonomous driving. He prefers NVIDIA Corporation ( NVDA ) over Mobileye even though Mobileye is a pure autonomous driving play, while NVIDIA is not as it has many other segments. He notes that Mobileye's revenue is expected to increase 41% this year, while its earnings are expected to grow 44%, against NVIDIA's 11% revenue growth and 47% earnings growth.
However, he adds that more growth is expected at Mobileye because it is much smaller as NVIDIA is working off much larger numbers.
He says the auto supplier's weakness is its valuation with a trailing price to earnings ratio of 106 and a forward price to earnings ratio of 34. He argues that while these multiples appear to be justified based on the earnings growth, competition from NVIDIA, Qualcomm, Inc. ( QCOM ) and other chip makers isn't being priced in enough.
He also notes that while Mobileye could sacrifice margins to preserve its share of the market, but then it would become less profitable. NVIDIA, on the other hand, has a trailing price to earnings ratio of 37 and a forward multiple of 27, which he says are supported its past growth and future earnings estimates.
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