Ambarella (NASDAQ:AMBA) three-year losses have grown faster than shareholder returns have fallen, but the stock climbs 8.2% this past week

Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Ambarella, Inc. (NASDAQ:AMBA) shareholders, since the share price is down 45% in the last three years, falling well short of the market return of around 31%. Furthermore, it's down 42% in about a quarter. That's not much fun for holders.

Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.

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Because Ambarella made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally hope to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Over the last three years, Ambarella's revenue dropped 15% per year. That means its revenue trend is very weak compared to other loss making companies. On the face of it we'd posit the share price fall of 13% compound, over three years is well justified by the fundamental deterioration. The key question now is whether the company has the capacity to fund itself to profitability, without more cash. The company will need to return to revenue growth as quickly as possible, if it wants to see some enthusiasm from investors.

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's TSR for the year was broadly in line with the market average, at 10%. To take a positive view, the gain is pleasing, and it sure beats annualized TSR loss of 2%, which was endured over half a decade. We're pretty skeptical of turnaround stories, but it's good to see the recent share price recovery. 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. Take risks, for example - Ambarella has 2 warning signs we think you should be aware of.

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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.