U.S. Markets closed

Why Ambarella Stock Jumped Today

Timothy Green, The Motley Fool

What happened

Shares of video compression and image processing chip company Ambarella Inc. (NASDAQ: AMBA) surged on Wednesday despite no news. The stock has been volatile over the past year, rising sharply and tumbling multiple times. Wednesday's move may just be a continuation of that volatility. Ambarella stock was up about 10.7% at 3:40 p.m. EDT.

So what

The last meaningful development for Ambarella was its fourth-quarter report on March 1. The company beat analyst estimates for both revenue and earnings, although both numbers slumped. Sales of $70.6 million were down 19.3% year over year, while adjusted earnings per share tumbled 51%.

Ambarella chips.

Image source: Ambarella.

On top of the revenue and earnings decline, Ambarella provided guidance that was below expectations. The company expects first-quarter revenue between $54.5 million and $57.5 million, below the consensus analyst estimate of $58.27 million.

The stock surged in the days following this report, peaking in mid-March. It then began to decline, wiping out all its post-earnings gains. Wednesday's rally undoes some of that decline, but the stock is still below where it was a month earlier.

AMBA Chart

AMBA data by YCharts

Now what

One reason for this volatility could be the valuation. Ambarella is valued at about $1.78 billion, six times sales and nearly 100 times GAAP earnings. That lofty valuation is despite revenue and earnings slumping in fiscal 2018.

Stocks can make big moves up and down for all sorts of reasons, and sometimes for no reason at all. Ambarella's surge today falls into the latter category.

More From The Motley Fool

Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ambarella. The Motley Fool has a disclosure policy.