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Those Who Purchased Metals Australia (ASX:MLS) Shares Three Years Ago Have A 88% Loss To Show For It

Simply Wall St
·4-min read

Every investor on earth makes bad calls sometimes. But you want to avoid the really big losses like the plague. So spare a thought for the long term shareholders of Metals Australia Ltd (ASX:MLS); the share price is down a whopping 88% in the last three years. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. The more recent news is of little comfort, with the share price down 67% in a year. Furthermore, it's down 50% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 28% in the same timeframe.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

See our latest analysis for Metals Australia

With just AU$3,495 worth of revenue in twelve months, we don't think the market considers Metals Australia to have proven its business plan. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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 Metals Australia finds some valuable resources, before it runs out of money.

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 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). Metals Australia has already given some investors a taste of the bitter losses that high risk investing can cause.

Metals Australia had liabilities exceeding cash by AU$34k when it last reported in December 2019, according to our data. That makes it extremely high risk, in our view. But since the share price has dived -50% per year, over 3 years , it looks like some investors think it's time to abandon ship, so to speak. You can click on the image below to see (in greater detail) how Metals Australia's cash levels have changed over time. You can click on the image below to see (in greater detail) how Metals Australia's cash levels have changed over time.

ASX:MLS Historical Debt, March 17th 2020
ASX:MLS Historical Debt, March 17th 2020

It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. 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 only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

We regret to report that Metals Australia shareholders are down 67% for the year. Unfortunately, that's worse than the broader market decline of 17%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 24% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. For example, we've discovered 7 warning signs for Metals Australia (4 are significant!) that you should be aware of before investing here.

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 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.