Swelling losses haven't held back gains for Amaero (ASX:3DA) shareholders since they're up 200% over 3 years

It hasn't been the best quarter for Amaero Ltd (ASX:3DA) shareholders, since the share price has fallen 24% in that time. In contrast, the return over three years has been impressive. Indeed, the share price is up a very strong 200% in that time. It's not uncommon to see a share price retrace a bit, after a big gain. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.

In light of the stock dropping 17% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.

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Amaero isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually desire strong revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

Over the last three years Amaero has grown its revenue at 94% annually. That's much better than most loss-making companies. Meanwhile, the share price performance has been pretty solid at 44% compound over three years. This suggests the market has recognized the progress the business has made, at least to a significant degree. Nonetheless, we'd say Amaero is still worth investigating - successful businesses can often keep growing for long periods.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. You can see what analysts are predicting for Amaero in this interactive graph of future profit estimates.

A Different Perspective

While the broader market gained around 13% in the last year, Amaero shareholders lost 22%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 9% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Amaero better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Amaero (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.

Amaero is not the only stock that insiders are buying. For those who like to find lesser know companies this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.