Archer Materials' (ASX:AXE) Wonderful 939% Share Price Increase Shows How Capitalism Can Build Wealth
Long term investing can be life changing when you buy and hold the truly great businesses. And we've seen some truly amazing gains over the years. Don't believe it? Then look at the Archer Materials Limited (ASX:AXE) share price. It's 939% higher than it was five years ago. This just goes to show the value creation that some businesses can achieve. Also pleasing for shareholders was the 75% gain in the last three months.
Anyone who held for that rewarding ride would probably be keen to talk about it.
See our latest analysis for Archer Materials
We don't think Archer Materials' revenue of AU$1,360,396 is enough to establish significant demand. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, investors may be hoping that Archer Materials finds some valuable resources, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty 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). Archer Materials has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
Archer Materials has plenty of cash in the bank, with cash in excess of all liabilities sitting at AU$8.1m, when it last reported (December 2020). That allows management to focus on growing the business, and not worry too much about raising capital. And given that the share price has shot up 28% per year, over 5 years , it's fair to say investors are liking management's vision for the future. The image below shows how Archer Materials' balance sheet has changed over time; if you want to see the precise values, simply click on the image.
In reality it's hard to have much certainty when valuing a business that has neither 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. You can click here to see if there are insiders buying.
A Different Perspective
We're pleased to report that Archer Materials shareholders have received a total shareholder return of 517% over one year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 60% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 4 warning signs for Archer Materials (1 doesn't sit too well with us!) that you should be aware of before investing here.
But note: Archer Materials may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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. 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.
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