Investing can be hard but the potential fo an individual stock to pay off big time inspires us. You won’t get it right every time, but when you do, the returns can be truly splendid. For example, the Beacon Minerals Limited (ASX:BCN) share price is up a whopping 425% in the last three years, a handsome return for long term holders. Also pleasing for shareholders was the 11% gain in the last three months. But this could be related to the strong market, which is up 8.5% in the last three months.
Beacon Minerals didn’t have any revenue in the last year, so it’s fair to say it doesn’t yet have a proven product (or at least not one people are paying for). As a result, we think it’s unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. For example, investors may be hoping that Beacon Minerals finds some valuable resources, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered high risk. 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 such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). Of course, if you time it right, high risk investments like this can really pay off, as Beacon Minerals investors might know.
Our data indicates that Beacon Minerals had net debt of AU$9,571,576 when it last reported in December 2018. That puts it in the highest risk category, according to our analysis. So we’re surprised to see the stock up 74% per year, over 3 years, but we’re happy for holders. It’s clear more than a few people believe in the potential. The image belows shows how Beacon Minerals’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.
Of course, the truth is that it is hard to value companies without much revenue or profit. However you can take a look at whether insiders have been buying up shares. It’s usually a positive if they have, as it may indicate they see value in the stock. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
What about the Total Shareholder Return (TSR)?
We’ve already covered Beacon Minerals’s share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Beacon Minerals hasn’t been paying dividends, but its TSR of 869% exceeds its share price return of 425%, implying it has raised capital at a discount, which is deemed to provide value to shareholders.
A Different Perspective
We’re pleased to report that Beacon Minerals shareholders have received a total shareholder return of 17% over one year. However, that falls short of the 51% TSR per annum it has made for shareholders, each year, over five years. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
Of course Beacon Minerals may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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 firstname.lastname@example.org. 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.