Sell Ambarella (NSDQ: AMBA)

I suggest taking a tough loss in Ambarella. The stock dropped 22% last Friday due to very poor guidance for the second half of the year and is down 24% since my November 2016 recommendation.

Drone customers across the board are getting hit by the success of low priced products. Declining sales to this group outweigh the positive developments the company is seeing with security cameras and automotive products.

Estimates for fiscal 2018 (ending January 2018) were $3.08 when I first recommended the stock last November and are now $2.08. After an issue last quarter, I gave the company a small grace period but continued issues with component suppliers and downdrafts in demand have sapped my confidence in the company.

The stock may bottom out here as it has more than $11.00 per share in cash and is still quite profitable. That said, it is trading with a price to earnings ratio of 21, a number I think is too high for a stock that will have declining earnings this year and potentially flat earnings in fiscal 2019.