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The Andromeda Metals (ASX:ADN) Share Price Is Up 425% And Shareholders Are Delighted

Simply Wall St

Andromeda Metals Limited (ASX:ADN) shareholders might be concerned after seeing the share price drop 25% in the last month. But that isn't a problem when you consider how the share price has soared over the last year. In that time, shareholders have had the pleasure of a 425% boost to the share price. So the recent fall isn't enough to negate the good performance. While winners often keep winning, it can pay to be cautious after a strong rise.

See our latest analysis for Andromeda Metals

Andromeda Metals hasn't yet reported any revenue, so it's as much a business idea as an actual business. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Andromeda Metals will find or develop a valuable new mine before too long.

As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. While some companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Of course, if you time it right, high risk investments like this can really pay off, as Andromeda Metals investors might know.

When it reported in June 2019 Andromeda Metals had minimal cash in excess of all liabilities consider its expenditure: just AU$216k to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. It's a testament to the popularity of the business plan that the share price gained 48% in the last year , despite the weak balance sheet. You can click on the image below to see (in greater detail) how Andromeda Metals's cash levels have changed over time. You can click on the image below to see (in greater detail) how Andromeda Metals's cash levels have changed over time.

ASX:ADN Historical Debt, November 12th 2019

It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. However you can take a look at whether insiders have been buying up shares. If they are buying a significant amount of shares, that's certainly a good thing. You can click here to see if there are insiders buying.

What about the Total Shareholder Return (TSR)?

We've already covered Andromeda Metals's share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. We note that Andromeda Metals's TSR, at 425% is higher than its share price return of 425%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

It's good to see that Andromeda Metals has rewarded shareholders with a total shareholder return of 425% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 21% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.