Finance

Dissecting the Numbers for Ambarella, Inc. (AMBA) and Clean Energy Fuels Corp. (CLNE)

Ambarella, Inc. (NASDAQ:AMBA) shares are down more than -7.39% this year and recently increased 7.25% or $3.68 to settle at $54.41. Clean Energy Fuels Corp. (NASDAQ:CLNE), on the other hand, is up 8.37% year to date as of 05/16/2018. It currently trades at $2.20 and has returned 15.18% during the past week.

Ambarella, Inc. (NASDAQ:AMBA) and Clean Energy Fuels Corp. (NASDAQ:CLNE) are the two most active stocks in the Semiconductor Equipment & Materials industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect AMBA to grow earnings at a 14.67% annual rate over the next 5 years. Comparatively, CLNE is expected to grow at a 25.00% annual rate. All else equal, CLNE’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Ambarella, Inc. (AMBA) has an EBITDA margin of 10.32%. This suggests that AMBA underlying business is more profitable AMBA’s ROI is 4.10% while CLNE has a ROI of -10.10%. The interpretation is that AMBA’s business generates a higher return on investment than CLNE’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. AMBA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.69. Comparatively, CLNE’s free cash flow per share was -0.06. On a percent-of-sales basis, AMBA’s free cash flow was 0.01% while CLNE converted -0% of its revenues into cash flow. This means that, for a given level of sales, AMBA is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. AMBA has a current ratio of 9.30 compared to 1.60 for CLNE. This means that AMBA can more easily cover its most immediate liabilities over the next twelve months. AMBA’s debt-to-equity ratio is 0.00 versus a D/E of 0.61 for CLNE. CLNE is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

AMBA trades at a forward P/E of 27.80, a P/B of 3.76, and a P/S of 6.21, compared to a P/B of 0.76, and a P/S of 0.92 for CLNE. AMBA is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. AMBA is currently priced at a -7.1% to its one-year price target of 58.57. Comparatively, CLNE is -66.15% relative to its price target of 6.50. This suggests that CLNE is the better investment over the next year.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. AMBA has a beta of 1.24 and CLNE’s beta is 1.51. AMBA’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. AMBA has a short ratio of 5.02 compared to a short interest of 3.46 for CLNE. This implies that the market is currently less bearish on the outlook for CLNE.

Summary

Ambarella, Inc. (NASDAQ:AMBA) beats Clean Energy Fuels Corp. (NASDAQ:CLNE) on a total of 8 of the 14 factors compared between the two stocks. AMBA is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, AMDA has better sentiment signals based on short interest.

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