Investing can be hard but the potential fo an individual stock to pay off big time inspires us. You won’t get it right every time, but when you do, the returns can be truly splendid. Take, for example, the Aeon Metals Limited (ASX:AML) share price, which skyrocketed 418% over three years. It’s also good to see the share price up 12% over the last quarter. But this could be related to the strong market, which is up 12% in the last three months.
Aeon Metals didn’t have any revenue in the last year, so it’s fair to say it doesn’t yet have a proven product (or at least not one people are paying for). 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. It seems likely some shareholders believe that Aeon Metals will find or develop a valuable new mine before too long.
We think companies that have neither significant revenues nor profits are pretty high risk. 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. Of course, if you time it right, high risk investments like this can really pay off, as Aeon Metals investors might know.
Our data indicates that Aeon Metals had net debt of AU$4,088,000 when it last reported in June 2018. That makes it extremely high risk, in our view. So the fact that the stock is up 73% per year, over 3 years shows that high risks can lead to high rewards, sometimes. It’s clear more than a few people believe in the potential. You can click on the image below to see (in greater detail) how Aeon Metals’s cash and debt levels have changed over time.
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. One thing you can do is check if company insiders are buying shares. If they are buying a significant amount of shares, that’s certainly a good thing. You can click here to see if there are insiders buying.
A Different Perspective
Aeon Metals provided a TSR of 9.6% over the year. That’s fairly close to the broader market return. We should note here that the five-year TSR is more impressive, at 14% per year. Although the share price growth has slowed, the longer term story points to a business well worth watching. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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 firstname.lastname@example.org. 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.