Ambarella, Inc. (NASDAQ:AMBA) shareholders might understandably be very concerned that the share price has dropped 34% in the last quarter. But at least the stock is up over the last five years. However we are not very impressed because the share price is only up 55%, less than the market return of 65%.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

See our latest analysis for Ambarella

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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

For the last half decade, Ambarella can boast revenue growth at a rate of 8.9% per year. That's a pretty good long term growth rate. Revenue has been growing at a reasonable clip, so it's debatable whether the share price growth of 9% full reflects the underlying business growth. The key question is whether revenue growth will slow down, and if so, how quickly. Lack of earnings means you have to project further into the future justify the valuation on the basis of future free cash flow.

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. If you are thinking of buying or selling Ambarella stock, you should check out this free report showing analyst consensus estimates for future profits.

A Different Perspective

Ambarella shareholders are up 2.8% for the year. But that was short of the market average. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 9% over five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. 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. To that end, you should be aware of the 3 warning signs we've spotted with Ambarella .

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.