Shareholders have faith in loss-making Ambarella (NASDAQ:AMBA) as stock climbs 4.1% in past week, taking five-year gain to 39%

The main point of investing for the long term is to make money. Better yet, you'd like to see the share price move up more than the market average. But Ambarella, Inc. (NASDAQ:AMBA) has fallen short of that second goal, with a share price rise of 39% over five years, which is below the market return. However, more recent buyers should be happy with the increase of 37% over the last year.

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

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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.

In the last 5 years Ambarella saw its revenue grow at 1.5% per year. That's not a very high growth rate considering the bottom line. Like its revenue, its share price gained over the period. The increase of 7% per year probably reflects the modest revenue growth. It seems likely that we'll have to zoom in on the data, including profits, to understand if there is an opportunity here.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Ambarella is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.

A Different Perspective

We're pleased to report that Ambarella shareholders have received a total shareholder return of 37% over one year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 7% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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 Ambarella that 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.