Yahoo Finance Those Who Purchased Variscan Mines (ASX:VAR) Shares Five Years Ago Have A 95% Loss To Show For It
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Over the last month the Variscan Mines Limited (ASX:VAR) has been much stronger than before, rebounding by 100%. But will that repair the damage for the weary investors who have owned this stock as it declined over half a decade? Probably not. Five years have seen the share price descend precipitously, down a full 95%. While the recent increase might be a green shoot, we're certainly hesitant to rejoice. The million dollar question is whether the company can justify a long term recovery.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
View our latest analysis for Variscan Mines
With just AU$88,987 worth of revenue in twelve months, we don't think the market considers Variscan Mines to have proven its business plan. You have to wonder why venture capitalists aren't funding it. As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. For example, investors may be hoping that Variscan Mines finds some valuable resources, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. 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. Variscan Mines has already given some investors a taste of the bitter losses that high risk investing can cause.
Variscan Mines had cash in excess of all liabilities of just AU$1.2m when it last reported (December 2018). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. That probably explains why the share price is down 45% per year, over 5 years. The image below shows how Variscan Mines's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can click on the image below to see (in greater detail) how Variscan Mines's cash levels have changed over time.
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? It would bother me, that's for sure. It only takes a moment for you to check whether we have identified any insider sales recently.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Variscan Mines's total shareholder return (TSR) and its share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. We note that Variscan Mines's TSR, at -92% is higher than its share price return of -95%. 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
While the broader market gained around 12% in the last year, Variscan Mines shareholders lost 33%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. However, the loss over the last year isn't as bad as the 40% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
Of course Variscan Mines may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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 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. Thank you for reading.
