Yahoo Finance Can You Imagine How Jubilant East Energy Resources' (ASX:EER) Shareholders Feel About Its 200% Share Price Gain?
Unfortunately, investing is risky - companies can and do go bankrupt. But if you pick the right business to buy shares in, you can make more than you can lose. For example, the East Energy Resources Limited (ASX:EER) share price has soared 200% in the last year. Most would be very happy with that, especially in just one year! In the last week the share price is up 50%. In contrast, the longer term returns are negative, since the share price is 14% lower than it was three years ago.
Check out our latest analysis for East Energy Resources
East Energy Resources recorded just AU$1,604 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. 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 East Energy Resources will discover or develop fossil fuel 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). Some East Energy 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 East Energy Resources had AU$1.0m more in total liabilities than it had cash, when it last reported in December 2019. That makes it extremely high risk, in our view. So the fact that the stock is up 73% in the last year shows that high risks can lead to high rewards, sometimes. It's clear more than a few people believe in the potential. The image below shows how East Energy 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. If they are buying a significant amount of shares, that's certainly a good thing. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
A Different Perspective
We're pleased to report that East Energy Resources shareholders have received a total shareholder return of 200% over one year. There's no doubt those recent returns are much better than the TSR loss of 17% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. It's always interesting to track share price performance over the longer term. But to understand East Energy Resources better, we need to consider many other factors. For example, we've discovered 6 warning signs for East Energy Resources (4 are a bit concerning!) that you should be aware of before investing here.
We will like East Energy Resources 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.
