The Crazy Valuation Game Mobileye

There are several companies listed on the US stock exchange that make me marvel at their sky high valuations. They make no sense to me as an economist but that does not mean that investors are completely crazy valuing them the way that they do. For example, I have for a couple of years been following Mobileye (MBLY) - to me this company is an interesting sector namely driverless car technology but it seems to me to have been massively overvalued and I am not too convinced of the value of their product as I think I can see fine with my eyeballs what is on the road.

The other day it was trading at around $46 per share based on profits of $0.46 per share making it 100 times earnings with a market capitalization of around $13 billion dollars. Then on Monday everyone was stunned by a bid from Intel for the company at $63.56 per share, so the share has since shot up to $61 and its market capitalization is now $17.3 billion a gain of $4 billion is just a day so it now trades as 133 times earnings. The trouble is Intel is paying 42 times next years sales (i.e. revenue)I doubt that it is worth that amount and Intel has a bad track record on its acquisitions. There is, however, a lesson about the risk of shorting what seems to be a highly overvalued stoc - the risk that some bidder will come in with a massive bid - the shorts on mobileye have been taken to the cleaners on this one - see CitronResearch graphic below. I don't blame the owners of mobileye for cashing out on this one I would do the same in their boots.

(Click on image to enlarge)



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