We think intelligent long term investing is the way to go. But no-one is immune from buying too high. Zooming in on an example, the Focus Minerals Limited (ASX:FML) share price dropped 55% in the last half decade. We certainly feel for shareholders who bought near the top. On top of that, the share price has dropped a further 18% in a month.
With just AU$1,594,000 worth of revenue in twelve months, we don't think the market considers Focus Minerals to have proven its business plan. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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 Focus Minerals finds some valuable resources, before it runs out of money.
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. It certainly is a dangerous place to invest, as Focus Minerals investors might realise.
Our data indicates that Focus Minerals had AU$13m more in total liabilities than it had cash, when it last reported in June 2019. That makes it extremely high risk, in our view. But with the share price diving 15% per year, over 5 years , it's probably fair to say that some shareholders no longer believe the company will succeed. You can click on the image below to see (in greater detail) how Focus Minerals's cash levels have changed over time. You can see in the image below, how Focus Minerals's cash levels have changed over time (click to see the values).
Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.
A Different Perspective
We're pleased to report that Focus Minerals shareholders have received a total shareholder return of 46% over one year. There's no doubt those recent returns are much better than the TSR loss of 15% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. You could get a better understanding of Focus Minerals's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
We will like Focus Minerals 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.
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 email@example.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.