It is a pleasure to report that the Magnachip Semiconductor Corporation (NYSE:MX) is up 44% in the last quarter. But only the myopic could ignore the astounding decline over three years. Indeed, the share price is down a whopping 73% in the last three years. So we're relieved for long term holders to see a bit of uplift. But the more important question is whether the underlying business can justify a higher price still.

While the stock has risen 13% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

Magnachip Semiconductor 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. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last three years Magnachip Semiconductor saw its revenue shrink by 28% per year. That's definitely a weaker result than most pre-profit companies report. And as you might expect the share price has been weak too, dropping at a rate of 20% per year. Never forget that loss making companies with falling revenue can and do cause losses for everyday investors. There is a good reason that investors often describe buying a sharply falling stock price as 'trying to catch a falling knife'. Think about it.

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

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.

A Different Perspective

Magnachip Semiconductor shareholders are down 12% for the year, but the market itself is up 16%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 10% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. It's always interesting to track share price performance over the longer term. But to understand Magnachip Semiconductor better, we need to consider many other factors.

Magnachip Semiconductor is not the only stock that insiders are buying. For those who like to find lesser know companies this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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.