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Can You Imagine How Chuffed Sayona Mining's (ASX:SYA) Shareholders Feel About Its 233% Share Price Gain?

Simply Wall St

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Sayona Mining Limited (ASX:SYA) shareholders might understandably be very concerned that the share price has dropped 58% in the last quarter. But that scarcely detracts from the really solid long term returns generated by the company over five years. Indeed, the share price is up an impressive 233% in that time. To some, the recent pullback wouldn't be surprising after such a fast rise. Ultimately business performance will determine whether the stock price continues the positive long term trend.

Check out our latest analysis for Sayona Mining

With just AU$143,877 worth of revenue in twelve months, we don't think the market considers Sayona Mining to have proven its business plan. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Sayona Mining will find or develop a valuable new mine 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. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Of course, if you time it right, high risk investments like this can really pay off, as Sayona Mining investors might know.

When it reported in December 2018 Sayona Mining had minimal cash in excess of all liabilities consider its expenditure: just AU$3.5m to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. It's a testament to the popularity of the business plan that the share price gained 27% per year, over 5 years, despite the weak balance sheet. The image below shows how Sayona Mining's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

ASX:SYA Historical Debt, May 31st 2019

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 often positive if so, assuming the buying is sustained and meaningful. You can click here to see if there are insiders buying.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Sayona Mining'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. Sayona Mining hasn't been paying dividends, but its TSR of 279% exceeds its share price return of 233%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

Investors in Sayona Mining had a tough year, with a total loss of 79%, against a market gain of about 10%. 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. On the bright side, long term shareholders have made money, with a gain of 31% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. You could get a better understanding of Sayona Mining's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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 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. Thank you for reading.