Yahoo Finance Those who invested in VRX Silica (ASX:VRX) five years ago are up 641%
It hasn't been the best quarter for VRX Silica Limited (ASX:VRX) shareholders, since the share price has fallen 20% in that time. But over five years returns have been remarkably great. To be precise, the stock price is 622% higher than it was five years ago, a wonderful performance by any measure. So we don't think the recent decline in the share price means its story is a sad one. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. We love happy stories like this one. The company should be really proud of that performance!
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
View our latest analysis for VRX Silica
VRX Silica recorded just AU$1,356,599 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 that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, investors may be hoping that VRX Silica finds some valuable resources, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some VRX Silica 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.
When it last reported its balance sheet in June 2021, VRX Silica could boast a strong position, with cash in excess of all liabilities of AU$9.6m. That allows management to focus on growing the business, and not worry too much about raising capital. And given that the share price has shot up 37% per year, over 5 years , it's fair to say investors are liking management's vision for the future. You can see in the image below, how VRX Silica'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. One thing you can do is check if company insiders are buying 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)?
We've already covered VRX Silica's share price action, but we should also mention its total shareholder return (TSR). 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 VRX Silica's TSR, at 641% is higher than its share price return of 622%. 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
VRX Silica shareholders are up 11% for the year. But that was short of the market average. If we look back over five years, the returns are even better, coming in at 49% per year for five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that VRX Silica is showing 3 warning signs in our investment analysis , you should know about...
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.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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