For many investors, the main point of stock picking is to generate higher returns than the overall market. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that's been the case for longer term Ambarella, Inc. (NASDAQ:AMBA) shareholders, since the share price is down 50% in the last three years, falling well short of the market return of around 19%. The more recent news is of little comfort, with the share price down 35% in a year.

With the stock having lost 4.5% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

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. Shareholders of unprofitable companies usually desire strong revenue growth. 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, Ambarella's revenue dropped 5.4% per year. That's not what investors generally want to see. The annual decline of 14% per year in that period has clearly disappointed holders. That makes sense given the lack of either profits or revenue growth. Of course, sentiment could become too negative, and the company may actually be making progress to profitability.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

Ambarella is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. 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 35%, against a market gain of about 25%. 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 4%, 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. Take risks, for example - Ambarella has 3 warning signs we think you should be aware of.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com