Statistically speaking, long term investing is a profitable endeavour. But along the way some stocks are going to perform badly. For example, after five long years the Minbos Resources Limited (ASX:MNB) share price is a whole 80% lower. That is extremely sub-optimal, to say the least. And it's not just long term holders hurting, because the stock is down 60% in the last year.
We don't think Minbos Resources's revenue of AU$39,300 is enough to establish significant demand. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Minbos Resources 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. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Minbos Resources investors have already had a taste of the bitterness stocks like this can leave in the mouth.
When it last reported its balance sheet in December 2018, Minbos Resources had cash in excess of all liabilities of AU$2.6m. That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. With the share price down 28% per year, over 5 years, it seems likely that the need for cash is weighing on investors' minds. The image below shows how Minbos Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how Minbos Resources's 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. Would it bother you if insiders were selling the stock? It would bother me, that's for sure. You can click here to see if there are insiders selling.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Minbos Resources's total shareholder return (TSR) and its share price return. 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. We note that Minbos Resources's TSR, at -68% is higher than its share price return of -80%. 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
While the broader market gained around 6.1% in the last year, Minbos Resources shareholders lost 60%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 20% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. You could get a better understanding of Minbos Resources's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
If you are like me, then you will 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 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.