Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that's been the case for longer term Ambac Financial Group, Inc. (NYSE:AMBC) shareholders, since the share price is down 31% in the last three years, falling well short of the market return of around 61%. Shareholders have had an even rougher run lately, with the share price down 19% in the last 90 days.
Given that Ambac Financial Group didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. Shareholders of unprofitable companies usually expect 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.
In the last three years Ambac Financial Group saw its revenue shrink by 42% per year. That's definitely a weaker result than most pre-profit companies report. With revenue in decline, the share price decline of 9% per year is hardly undeserved. The key question now is whether the company has the capacity to fund itself to profitability, without more cash. Of course, it is possible for businesses to bounce back from a revenue drop - but we'd want to see that before getting interested.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
If you are thinking of buying or selling Ambac Financial Group stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
Ambac Financial Group shareholders are up 3.7% for the year. Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 4% endured over half a decade. So this might be a sign the business has turned its fortunes around. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Ambac Financial Group (of which 1 is significant!) you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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