Ambarella (NASDAQ:AMBA) jumped to an early lead in the surging market for low-power, high-definition video camera technology. That prime market position led to soaring gains for investors through mid-2015. However, the stock is significantly trailing the broader market over the last 12 months as the semiconductor designer's growth pace slowed down.

Let's look at the important metrics investors will be watching for in Ambarella's fiscal second-quarter earnings report set to publish on Thursday, Aug. 31.

Two young ladies take a picture using a sports camera and a selfie stick.

Image source: Getty Images.

Where growth comes from

Three months ago, CEO Fermi Wang and his executive team forecast second-quarter sales of $70 million at the midpoint of guidance, which translates into 8% growth. That would mark a deceleration from the prior quarter's 12% jump and is far from the 40% surge the company booked for the full fiscal 2016 year .

While sales growth will be important to see, it's also key that Ambarella produce gains in market segments that aren't tied to wearable sports cameras. The sales base has been dominated by that niche since 2013. That was good news while GoPro (NASDAQ:GPRO), one of its biggest customers, was enjoying sharp growth. The camera specialist's dramatic stumbles in the past year demonstrated the pitfalls of being so dependent on a single industry segment.

In response, Ambarella has been developing camera solutions for related industries like automotive, home monitoring, and drones. Executives are also excited about the long-term prospects for the emerging field of computer vision. There's no guarantee that Ambarella's competitive advantages will translate into these new fields, which is why the mix of sales categories will be key to watch.

Profit margin trends

The sports camera market carries higher profit margins, so investors should brace for profitability to slip as the sales base tilts away from that segment toward areas like IP security. We saw this happen last quarter, with gross margin dipping to 63.9% of sales from 64.2% in the year ago period. Ambarella is forecasting a more dramatic slump for the current quarter as the metric falls to 63% from 67%.

An engineer assembles a computer chip.

Image source: Getty Images.

Investors will want to see profitability begin improving as quickly as possible. After all, its deep portfolio of video processing and semiconductor design technology forms the company's entire competitive advantage. That's a key reason why Ambarella dedicates so many resources toward research and development. A trend of sinking profit margins would suggest that the company is losing its edge.

An updated forecast

Investors will be focused on Ambarella's sales guidance for the third quarter. Revenue in the year-ago period was $100 million, which was a record for the company at the time. However, consensus estimates are targeting declines of about 11% as the revenue base dips to $89 million. One big reason for the drop is that the company isn't likely to benefit from the same GoPro inventory buildup that lifted results last year.

Wang and his team will have a better understanding of the latest operating trends than Wall Street analysts, though, and so their forecast might differ substantially from the one that the pros have landed on. More importantly, look for any updates on Ambarella's judgement of the health of their camera tech markets, both core segments and emerging ones. This projection will determine whether the company can return to sales growth this year following a rare decline in 2016.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.