Shares of extreme action camera manufacturer GoPro (NASDAQ:GPRO) have been badly hammered this year. GoPro shares are down 46.7% YTD, with the latest selloff coming over the last couple of days after Ambarella (NASDAQ:AMBA), the company that supplies state-of-the-art video chips to GoPro, delivered mixed second quarter earnings and issued soft guidance. The weak report sent GoPro shares tumbling 22% in a matter of days.
Source: CNN Money
Ambarella’s Weak Guidance Caused The Recent Sell Off
What spooked investors about the Ambarella report was the company’s third quarter revenue guidance of $90 million-$93 million, the midpoint of which came in below analysts’ estimate of $93 million. GoPro is Ambarella’s biggest customer with Ambarella high-end chips being deployed in GoPro’s wearable cameras, broadcast infrastructure encoders, surveillance gears, and automotive dashboard recorders. Ambarella’s wearable cameras segment in particular was dismal, which led investors to suspect that GoPro sales might not be very impressive.
But it’s important to note that Ambarella did not pin the blame for the poor guidance on light demand for its chips, but rather due to GoPro’s timing of the launch of new HERO+ LCD and HERO4 Session cameras in the second quarter instead of the third quarter as the company has routinely done in the past.
The wild selloff in GoPro shares has led to the shares moving from overbought territory late last year to oversold currently. The shares currently sport an RSI reading of 10. An RSI reading below 30 indicates the shares are firmly in oversold territory and could be significantly undervalued.
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