Mobileye NV (NYSE:MBLY), which develops cutting-edge automobile technologies for collision prevention and autonomous driving, pulled off a standout quarter. But it was not enough for investors. In afternoon trading, MBLY stock is off 7% to $45.82 because of the abrupt termination of a deal with Tesla Motors Inc (NASDAQ:TSLA).
So could this be an opportunity for investors to get a better valuation?
Or should they be wary of MBLY stock? In other words, is the TSLA news the start of something more ominous?
Well, first of all, let’s take a look at the Mobileye earnings report. In the second quarter, revenues spiked by 58% to $83.5 million and earnings per share came to 17 cents per share. The Street was looking for revenues of $77 million and EPS of 15 cents per share.
The outlook for Mobileye earnings was also upbeat. For the full-year, the company forecasts revenues of $344 million to $350 million, up from the prior estimate of $336 million to $340 million. The consensus calls for $338.75 million.
MBLY also believes per-share earnings will come in at about 70 cents to 71 cents versus the Street prediction of 68 cents.
Tesla Is Just a Speed Bump
Now, it’s not clear why Tesla will not use Mobileye technology that goes beyond the current EyeQ3 technology, which allows for visual capabilities, but there’s lots of speculation. Perhaps TSLA has some fundamental concerns with MBLY?
Keep in mind that the company is under a federal investigation for the Autopilot feature of the Model S. The car was involved in a fatal crash, in which the systems were unable to detect a nearby 18-wheeler truck.
But then again, there are some things to keep in mind that should bode well for MBLY stock. For the most part, Tesla represents an immaterial part of the overall revenues. And MBLY recently got validation of its technological prowess when it struck a major deal with Intel Corporation (NASDAQ:INTC) and BMW AG (OTCMKTS:BMWYY), which is the world’s largest seller of luxury autos. The ambitious goal is to launch self-driving cars by 2021.
What’s more, there is still support from Wall Street. Just look at a note from Citigroup analyst Itay Michaeli:
“Though the news appears to be putting pressure on Mobileye stock pre-market, it doesn’t change our thesis on Mobileye including our view of its strategic role to the broader auto industry. We are Buyers of Mobileye on weakness.”
The price target currently sits at $66.
Bottom Line on MBLY Stock
I wrote previously that I believe that MBLY stock is one of the best plays on the long term. According to Boston Consulting, the market for self-driving auto technology is expected to reach a whopping $42 billion by 2025. And yes, MBLY is nicely positioned to be a big-time winner, given its patent portfolio and road-tested systems.
Granted, MBLY stock appears to be pricey, with the forward price-earnings ratio of about 41. But this actually looks reasonable in light of the company’s strong growth rate. In fact, it is expected to exceed 40% per year until 2019, primarily based on collision avoidance systems for major automakers like General Motors Company (NYSE:GM).
In other words, for investors looking for a solid tech play, this appears to be a good time to pick up shares on the dip.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
