Mobileye NV (NYSE:MBLY) shares fell on Friday, after rising throughout the week as investors anticipated an announcement from one of the company’s clients, Tesla Motors Inc (NASDAQ:TSLA). A mysterious tweet from Tesla CEO Elon Musk set the stage for a short-term boost in the Mobileye share price, which reached a new record high this week, having already doubled from their $25 initial public offering price.
Musk announced on Thursday that Tesla Motors Inc (NASDAQ:TSLA) would be introducing an “autopilot” system for its Model S range, as well as a new “D” trim which offers dual electric motors for better handling. Tesla confirmed that Mobileye would be providing technology for the new autopilot system.
Mobileye: An expanding market
Mobileye NV (NYSE:MBLY)’s EyeQ chips alert the driver of a vehicle to potential collisions by using cameras to scan the area around the car. The company has experienced rapid expansion, as vehicle manufacturers have started to use technological features as a way to differentiate their high-end models from the competition. Mobileye expects around 160 car models to use its technology by the end of 2014.
This rapid growth has seen revenues soar more than 90%, year over year, in the first six months of this year. According to FactSet, sales are expected to rise more than 60% in each of the next three fiscal years, maintaining rapid growth. They have also reported typical gross margins in excess of 70%.
However, Dan Gallagher of the Wall Street Journal has claimed that “hitting those marks still wouldn’t justify Mobileye’s valuation.”
The problem for Gallagher lies in the fact that shares are trading at over 190 times forward earnings. It would seem that even previously bullish Wall Street investors are treading carefully. Goldman Sachs, the lead IPO underwriter, has given the shares a neutral rating.
On the other hand, Andrea James of Dougherty & Co. claims that the relationship with Tesla Motors Inc (NASDAQ:TSLA) is a “compelling endorsement of Mobileye NV (NYSE:MBLY)’s technology”, rating the stocks as a Buy, with a $54 price target.