Get the Buzz on the Next Tech IPO

Editor’s Note: Last Thursday I held a teleconference to talk about one thing: how to generate 100% returns with stocks. During the conference I spoke with my colleague, Chris Preston, about one stock in particular that delivered a 110% gain to 100% Letter subscribers in just four months.
We’ve decided to share this stock with readers today since a recently announced tech IPO is likely to draw even more attention to the company. Here is an edited excerpt from my discussion with Chris last Thursday…
Chris: Tyler, we’ve talked about what happens after growth catalysts become more visible to the market. How you often see a sudden rush of investors into the stock, analyst upgrades, higher price targets, institutional buying, increased media coverage … all things that help fuel a higher share price.
So let’s talk about a specific example. You recommended a technology stock, Ambarella (NASDAQ:AMBA), in September, 2013. And five weeks ago you recommended subscribers lock in a 110% gain. That stock doubled in just four months. I’m not familiar with Ambarella, so first off, explain what Ambarella does. How did this success story unfold, and do you still like AMBA?
Tyler: First I should mention that even though we locked in a nice gain, I recommended that subscribers hold on to the other half of their shares for the long term. We still want exposure here. It just made sense to grab that quick gain while it was there.
Ambarella makes semiconductors for high-definition video. They’re best known for supplying chips for GoPro wearable cameras. But they also derive significant sales from security and automotive cameras, too. The company has been a huge success since it was founded in 2004. And revenues have been growing revenue by around 25% over past two years, but (they are) accelerating now.
Chris: I know you always highlight specific catalysts, or reasons to own a stock, to your subscribers. What did you highlight for AMBA? What catalysts were you looking for when you recommended it?
Tyler: First, keep in mind AMBA was a relatively small company when I recommended it; its market cap was around $400 million. So it was right in that sweet spot where I like to invest. That was the first thing.
Second, I saw revenue growth accelerating from 20% to 25% to 30%, and I expected that to continue based on estimates of sales from GoPro, auto and security cameras.
Then third, and I don’t usually do this, there was a good chance for a really quick pop in shares from an earnings announcement. The stock had sold off going into earnings, but not for good reasons. So we jumped on it.
And finally, the stock was cheap, especially on a forward P/E basis, since it traded at 17-times forward earnings, but was growing EPS by 50%. All of these things came together to suggest a wide disconnect between the share price and the growth the company was enjoying … and was likely to continue to enjoy.
Chris: And what is happening with the company now?
Tyler: One thing is that AMBA is developing a wearable camera for Google (NASDAQ:GOOG) for its “Helpout” application. This will be a high-def wearable camera that connects people over the Internet for training and consultation … applications are things like cooking, computer software training, health care … basically anything where the visual connection is really helpful. And it’s a more sophisticated option to Skype or FaceTime.
But probably the biggest near-term buzz is going to surround GoPro’s initial public offering. The company just filed under the JOBS Act with the SEC, so its financials are still confidential. But once those become public, we’re going to know a lot more about GoPro’s financial status, how AMBA fits into that mix and what the future potential for AMBA to grow along with GoPro is.
Chris: It sounds like this tech IPO for GoPro is going to be something to watch. I assume you’ll be updating your subscribers as that stock comes to market? And let them know how AMBA will be affected?
Tyler: Absolutely, even though I recommended selling half of the position in AMBA. There is still a lot of upside here. And we still have skin in the game, so I’m following the stock closely.
If you’d like to learn more about Tyler’s catalyst investing strategy and the six stocks he discussed in the teleconference, including Ambarella, as well as the pending GoPro public offering, you can learn more here.