Mobileye and its collision-prevention technology made a big splash at the CES consumer electronics trade show this month in Las Vegas.
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The Israeli company announced a collaborative agreement with Volkswagen and plans to pursue mapping technology that will pave the way for a future of driverless cars. The U.S. Department of Transportation said it was teaming up with Mobileye to award one city a grant to put the company’s technology on municipal buses — as close as you can get to a U.S. government endorsement.
But Mobileye’s successes in Las Vegas didn’t make it to Wall Street, where the company’s share price has been on a downward trajectory since the start of 2016. The stock is down about 42% since January 1 to $28.13 midday New York time on Thursday. Five months ago it was trading at $64.
Mobileye’s problems extend beyond the general weakness of the market. The Nasdaq Composite index, for instance, is down 10% so far this year.
One source of problems for the stock is the 2016 forecast made by its chief financial officer a week ago, which was lower than the consensus forecast by analysts. But the valuation of a company like Mobileye hinges more on the long-term outlook for its markets than quarterly outlooks.
The company’s camera-based technology is already installed on many vehicles, but the future of the company depends more on its ability to leverage its technology to the emerging world of driverless vehicles. It was this hope that had lifted Mobileye’s market cap to as much as $12 billion at one point.
Analysts are expecting Mobileye to report revenues of about $240 million for 2015, a figure that will grow to $360 million this year. But Mobile shares trade at a very high multiple against those numbers; its real value is based on its long-term prospects.
On that account, Mobileye is likely to be going up against some very strong competitors, although who they are and what they are developing is anyone’s guess for now. What is known is that Google is developing its own driverless car and it will inevitably be a formable rival.
“We don’t have complete information about research and development efforts by current or future competitors, including Google,” said Citibank in a recent report. As a result an unexpected innovation by competitors could quickly impact Mobileye’s growth outlook.”
Citi put a $70 target price on Mobileye shares, but Morgan Stanley recently cut its target to $57 from $80. Although it tagged the shares a Buy, Morgan expressed concerned about the stock being “pressurized” by growing competition in the driverless sector.
One investor who has Mobileye in its sights since September and has been trying to exploit the negative sentiment is Citron Research. On Tuesday Citron’s Andrew Left tweeted that Mobileye stock would be overvalued even at $10 per share.
A month ago Citron tweeted that the stock would be the “short of the year” for 2016, citing reports that Tesla planned to break off its technology alliance with Mobileye, sending the stock tumbling. Tesla quickly affirmed it was sticking with Mobileye.
Mobileye has been a magnet for short sellers like Citron, who bet on stocks falling, because its inflated valuation makes it vulnerable to selling. In mid-December, the short-interest ratio was 13%. Two weeks later it was down to 9%, which is still high.