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Did Changing Sentiment Drive Metalsearch's (ASX:MSE) Share Price Down A Painful 76%?

Simply Wall St

Metalsearch Limited (ASX:MSE) shareholders will doubtless be very grateful to see the share price up 71% in the last quarter. But will that heal all the wounds inflicted over 5 years of declines? Unlikely. Indeed, the share price is down a whopping 76% in that time. The recent bounce might mean the long decline is over, but we are not confident. The real question is whether the business can leave its past behind and improve itself over the years ahead.

See our latest analysis for Metalsearch

Metalsearch hasn't yet reported any revenue, so it's as much a business idea as an actual business. 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. It seems likely some shareholders believe that Metalsearch will find or develop a valuable new mine before too long.

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. 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 Metalsearch investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Metalsearch has plenty of cash in the bank, with cash in excess of all liabilities sitting at AU$1.7m, when it last reported (June 2019). That allows management to focus on growing the business, and not worry too much about raising capital. But with the share price diving 25% per year, over 5 years , it could be that the price was previously too hyped up. You can click on the image below to see (in greater detail) how Metalsearch's cash levels have changed over time. You can see in the image below, how Metalsearch's cash levels have changed over time (click to see the values).

ASX:MSE Historical Debt, November 8th 2019

Of course, the truth is that it is hard to value companies without much revenue or profit. What if insiders are ditching the stock hand over fist? 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.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Metalsearch's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. We note that Metalsearch's TSR, at -71% is higher than its share price return of -76%. 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

We're pleased to report that Metalsearch shareholders have received a total shareholder return of 20% over one year. There's no doubt those recent returns are much better than the TSR loss of 22% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

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.