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The main aim of stock picking is to find the market-beating stocks. But every investor is virtually certain to have both over-performing and under-performing stocks. At this point some shareholders may be questioning their investment in Astro Resources NL (ASX:ARO), since the last five years saw the share price fall 73%. It's up 50% in the last seven days.
With just AU$8,384 worth of revenue in twelve months, we don't think the market considers Astro Resources 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. It seems likely some shareholders believe that Astro Resources will find or develop a valuable new mine before too long.
Companies that lack both meaningful revenue and profits are usually considered 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Astro Resources has already given some investors a taste of the bitter losses that high risk investing can cause.
Our data indicates that Astro Resources had AU$2.5m more in total liabilities than it had cash, when it last reported in December 2019. That makes it extremely high risk, in our view. But since the share price has dived -23% per year, over 5 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 Astro Resources'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 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 Astro Resources's total shareholder return (TSR) and its share price change, which we've covered above. 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 Astro Resources's TSR, at -9.1% is higher than its share price return of -73%. 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
It's good to see that Astro Resources has rewarded shareholders with a total shareholder return of 50% in the last twelve months. Notably the five-year annualised TSR loss of 1.9% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. It's always interesting to track share price performance over the longer term. But to understand Astro Resources better, we need to consider many other factors. To that end, you should learn about the 6 warning signs we've spotted with Astro Resources (including 4 which is shouldn't be ignored) .
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.
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.
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.