Ambarella Inc, GoPro Inc Surge on 'Huge' Holiday Drone Demand

Ambarella Inc (NASDAQ:AMBA) and GoPro Inc (NASDAQ:GPRO) are heating up on a pair of bullish notes from Pacific Crest

Aug 30, 2016 at 10:55 AM
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Ambarella Inc (NASDAQ:AMBA) and GoPro Inc (NASDAQ:GPRO) are both surging after Pacific Crest waxed optimistic about their prospects through year-end. The optimism stems largely from the companies' focus on drones, which should be "huge this holiday," according to the brokerage firm.

Focusing on AMBA, Pacific Crest raised its price target on the stock to $75, citing the semiconductor producer's ability to consistently outexecute expectations. On top of that, Canaccord Genuity lifted its target price to $85. Not surprisingly, the shares are 2% higher at $71.94, and have roughly doubled since their mid-May lows.

This optimism echoes a trend we've witnessed on Wall Street among analysts. Options traders, however, are far from sold on AMBA. The stock's Schaeffer's put/call open interest ratio (SOIR) checks in at 1.06, meaning puts outstrip calls among options slated to expire in the next three months. What's more, this ratio outranks 90% of all others from the prior year, hinting at a near-extreme put-skew.

Perhaps options traders are banking on an earnings miss, with Ambarella Inc set to report Thursday evening. After all, the stock has moved lower half the time in the session following the company's last eight earnings reports, with the average loss at 5.2%. Of course, this also means the stock has rallied half the time -- most recently in early June, when it jumped 9.4%. A repeat performance could shake loose the weaker bearish hands, potential catalyzing any upside move.

Turning to GPRO, Pacific Crest described the company's holiday outlook as "promising," citing a three-SKU lineup -- one more than expected. The upbeat note has the shares 0.4% higher at $14.93, and since touching a record low of $8.62 in May, they've advanced 73%.

This hot streak has options traders boarding GPRO's bullish bandwagon. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 2.30 calls for every put in the past 10 days -- a ratio ranking in the top quartile of its annual range.

That said, analysts remain largely unconvinced of GoPro Inc's recovery, as two-thirds maintain a "hold" or worse opinion. Likewise, 35.7% of the shares' float is still dedicated to short interest. This leaves the door wide open for future upgrades and short covering, which could add fuel to the stock's fire.

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