By Grant Hosticka

Since I wrote my favorable initial thesis on Mobileye NV (NYSE:MBLY) the stock has risen nearly 25%. After yesterday’s first quarter earnings report, my conviction in this stock remains strong even with its high valuation. Ziv Aviram, CEO, co-founder, and president stated “During the quarter we saw accelerating trends toward ADAS and autonomous vehicle adoption, driven by recent announcements by OEMs and regulatory agencies, to improve driver safety.  As a result, we believe the company is well positioned to benefit from increased global penetration.” There is no better company to take advantage of these growing trends than Mobileye.

For those who are unfamiliar, MBLY provides a wide range of life-saving products. Chips and software receives data from car cameras and radars, helping alert drivers to danger in a plethora of situations. Furthermore, Mobileye has the potential to revolutionize the driving experience by enabling autonomous driving with the first hands-free capable driving at highway speeds and in congested traffic situations planned for launch in 2016. With recent government regulations requiring backup cameras in all new cars by May 2018, even though this is not Mobileye’s market, it is simply the first step towards a more regulated driving environment requiring the latest life-saving and accident-preventing technology.

Statistically, Mobileye had another great quarter reporting EPS of $0.08 and revenue of $45.6 million which both beat estimates of $0.07 and $44.23 million. Mobileye also announced they had won two major programs with two leading OEMs covering Europe and the U.S. Co-Founder Amnon Sashua stated “The launches (will) start in 2017 with peak volumes running in the millions of units building upwards 2019. The programs should continue beyond 2022.” Both of these programs depend on the new fourth generation EyeQ4 System-on-Chip.

Already, 90% of leading automakers have signed deals with Mobileye to install its systems in their newest vehicles. And as stated by Sashua in Mobileye’s earnings call “Since our IPO we won 100% of all RFQs (request for quotation)”. The economic moat for this company is incredible because they simply don’t have any viable competitors. Increasing regulations in the ADAS industry is a positive simply because it increases the barrier to entry. As the first mover in this industry, Mobileye doesn’t have anyone in their rear view mirror to worry about right now.

The first company to come to mind for many when thinking about self driving cars is Google Inc (NASDAQ:GOOG). Though some may argue that as a larger company, they are in the best position to succeed, this simply is not true. For one, self-driving cars seem to be almost a hobby for Google, not a focus. More importantly, Google uses LIDAR (Light Detection and Ranging) and GPS to guide their self-driving car, this is different from Mobileye which combines nearly all of their visionary features onto one chip which gives them a significant pricing edge. These features could be seen together in a future autonomous car, but Mobileye investors do not need to worry about Google for now.

With analysts trumpeting the possibility of a 50 percent revenue compounded annual growth rate through 2020, 75% gross margins, 50% revenue to free cash flow conversion and no gross debt, Mobileye makes a case for their valuation of the long-term. Though for investors looking for short-term gains, Mobileye might not be the best option due to slow overall adoption by the market as a whole. But, features such as automatic braking will soon become necessary to achieve a 5-star safety rating, thus the early adoption by many car-makers will continue to grow into the future.