MaxLinear (NASDAQ:MXL) adds US$139m to market cap in the past 7 days, though investors from three years ago are still down 70%

MaxLinear, Inc. (NASDAQ:MXL) shareholders should be happy to see the share price up 24% in the last month. But that is meagre solace in the face of the shocking decline over three years. In that time the share price has melted like a snowball in the desert, down 70%. So it sure is nice to see a bit of an improvement. Only time will tell if the company can sustain the turnaround.

While the stock has risen 15% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

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Given that MaxLinear 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. 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.

Over the last three years, MaxLinear's revenue dropped 37% per year. That's definitely a weaker result than most pre-profit companies report. The swift share price decline at an annual compound rate of 19%, reflects this weak fundamental performance. Never forget that loss making companies with falling revenue can and do cause losses for everyday investors. It's worth remembering that investors call buying a steeply falling share price 'catching a falling knife' because it is a dangerous pass time.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling MaxLinear stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

Investors in MaxLinear had a tough year, with a total loss of 35%, against a market gain of about 13%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% over the last half decade. 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. 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 2 warning signs for MaxLinear that you should be aware of.

MaxLinear is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.

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.