Yahoo Finance If You Had Bought GBM Resources (ASX:GBZ) Stock A Year Ago, You Could Pocket A 70% Gain Today
These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the GBM Resources Limited (ASX:GBZ) share price is 70% higher than it was a year ago, much better than the market decline of around 14% (not including dividends) in the same period. So that should have shareholders smiling. Zooming out, the stock is actually down 29% in the last three years.
View our latest analysis for GBM Resources
With just AU$69,427 worth of revenue in twelve months, we don't think the market considers GBM Resources to have proven its business plan. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, investors may be hoping that GBM Resources finds some valuable resources, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. There was already a significant chance that they would need more money for business development, and indeed they recently put themselves at the mercy of capital markets and raised equity. So the share price itself impacts the value of the shares (as it determines the cost of capital). 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). Some GBM Resources investors have already had a taste of the sweet taste stocks like this can leave in the mouth, as they gain popularity and attract speculative capital.
Our data indicates that GBM Resources had more in total liabilities than it had cash, when it last reported. That made it extremely high risk, in our view. So we're not surprised to see the stock up 113% in the last year , once the company took on some more capital. Investors must really like its potential. The image below shows how GBM 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. However you can take a look at whether insiders have been buying up shares. It's often positive if so, assuming the buying is sustained and meaningful. 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)?
Investors should note that there's a difference between GBM Resources's total shareholder return (TSR) and its share price change, which we've covered above. 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. GBM Resources hasn't been paying dividends, but its TSR of 70% exceeds its share price return of 70%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
It's good to see that GBM Resources has rewarded shareholders with a total shareholder return of 70% in the last twelve months. There's no doubt those recent returns are much better than the TSR loss of 14% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 6 warning signs for GBM Resources (2 don't sit too well with us!) that you should be aware of before investing here.
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.
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.
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