Ambarella, Inc. (NASDAQ:AMBA) shareholders should be happy to see the share price up 14% in the last month. But that is small recompense for the exasperating returns over three years. Tragically, the share price declined 61% in that time. So the improvement may be a real relief to some. While many would remain nervous, there could be further gains if the business can put its best foot forward.
On a more encouraging note the company has added US$105m to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.
Ambarella isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally hope to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.
Over the last three years, Ambarella's revenue dropped 12% per year. That's not what investors generally want to see. With revenue in decline, and profit but a dream, we can understand why the share price has been declining at 17% per year. Of course, it's the future that will determine whether today's price is a good one. We don't generally like to own companies that lose money and can't grow revenues. But any company is worth looking at when it makes a maiden profit.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Ambarella is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
Ambarella shareholders gained a total return of 7.4% during the year. But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 2% over half a decade It is possible that returns will improve along with the business fundamentals. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 3 warning signs for Ambarella that you should be aware of before investing here.
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 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.
