Shareholders have faith in loss-making Ambarella (NASDAQ:AMBA) as stock climbs 5.4% in past week, taking five-year gain to 50%

If you buy and hold a stock for many years, you'd hope to be making a profit. Furthermore, you'd generally like to see the share price rise faster than the market. Unfortunately for shareholders, while the Ambarella, Inc. (NASDAQ:AMBA) share price is up 50% in the last five years, that's less than the market return. Zooming in, the stock is actually down 36% in the last year.

Since the stock has added US$117m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Ambarella

Ambarella wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. 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.

For the last half decade, Ambarella can boast revenue growth at a rate of 8.9% per year. That's a fairly respectable growth rate. The annual gain of 8% over five years is better than nothing, but falls short of the market. Arguably, that means, the market (previously) expected stronger growth from the company.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

Ambarella is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So it makes a lot of sense to check out what analysts think Ambarella will earn in the future (free analyst consensus estimates)

A Different Perspective

Investors in Ambarella had a tough year, with a total loss of 36%, against a market gain of about 21%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 8%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. For instance, we've identified 3 warning signs for Ambarella that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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