Over the last month the Elementos Limited (ASX:ELT) has been much stronger than before, rebounding by 50%. But that doesn't change the fact that the returns over the last three years have been disappointing. Regrettably, the share price slid 70% in that period. So it's good to see it climbing back up. After all, could be that the fall was overdone.
With just AU$22,658 worth of revenue in twelve months, we don't think the market considers Elementos 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 Elementos 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. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. 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. Some Elementos investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Elementos had liabilities exceeding cash by AU$316k when it last reported in September 2019, according to our data. That makes it extremely high risk, in our view. But since the share price has dived -33% per year, over 3 years , it looks like some investors think it's time to abandon ship, so to speak. You can see in the image below, how Elementos's cash levels have changed over time (click to see the values). You can see in the image below, how Elementos's cash levels have changed over time (click to see the values).
In reality it's hard to have much certainty when valuing a business that has neither 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. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Elementos'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. Elementos hasn't been paying dividends, but its TSR of -68% 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
Elementos shareholders are down 40% for the year, but the market itself is up 27%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 12% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Elementos better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 6 warning signs for Elementos (of which 3 are significant!) you should know about.
Elementos is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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 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.
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