Yahoo Finance If You Had Bought Patrys (ASX:PAB) Stock Three Years Ago, You Could Pocket A 117% Gain Today
It hasn't been the best quarter for Patrys Limited (ASX:PAB) shareholders, since the share price has fallen 28% in that time. But that doesn't change the fact that the returns over the last three years have been very strong. In fact, the share price is up a full 117% compared to three years ago. To some, the recent share price pullback wouldn't be surprising after such a good run. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.
View our latest analysis for Patrys
With just AU$746,241 worth of revenue in twelve months, we don't think the market considers Patrys 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. It seems likely some shareholders believe that Patrys has the funding to invent a new product before too long.
We think companies that have neither significant revenues nor profits are pretty high risk. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets to raise 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). Of course, if you time it right, high risk investments like this can really pay off, as Patrys investors might know.
Patrys had cash in excess of all liabilities of AU$5.0m when it last reported (December 2019). 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. Given the share price has increased by a solid 94% per year, over 3 years , it's fair to say investors remain excited about the future, despite the potential need for cash. You can click on the image below to see (in greater detail) how Patrys's cash levels have changed over time.
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. 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.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Patrys'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 Patrys's TSR, at 125% is higher than its share price return of 117%. 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
We regret to report that Patrys shareholders are down 43% for the year. Unfortunately, that's worse than the broader market decline of 12%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.8% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. Take risks, for example - Patrys has 4 warning signs (and 2 which are significant) we think you should know about.
We will like Patrys better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider 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.
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. Thank you for reading.
