Investing in stocks comes with the risk that the share price will fall. And unfortunately for Ambac Financial Group, Inc. (NYSE:AMBC) shareholders, the stock is a lot lower today than it was a year ago. To wit the share price is down 54% in that time. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 20% in three years. Shareholders have had an even rougher run lately, with the share price down 40% in the last 90 days.

Since Ambac Financial Group has shed US$61m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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Ambac Financial Group wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn't make profits, we'd generally hope to see good 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.

Ambac Financial Group grew its revenue by 91% over the last year. That's well above most other pre-profit companies. In contrast the share price is down 54% over twelve months. Yes, the market can be a fickle mistress. Typically a growth stock like this will be volatile, with some shareholders concerned about the red ink on the bottom line (that is, the losses). Generally speaking investors would consider a stock like this less risky once it turns a profit. But when do you think that will happen?

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Ambac Financial Group in this interactive graph of future profit estimates .

A Different Perspective

Investors in Ambac Financial Group had a tough year, with a total loss of 54%, against a market gain of about 6.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 9% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.

Ambac Financial Group is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.

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.