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Did You Miss Genesis Minerals's (ASX:GMD) Impressive 260% Share Price Gain?

Simply Wall St

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But when you pick a company that is really flourishing, you can make more than 100%. Long term Genesis Minerals Limited (ASX:GMD) shareholders would be well aware of this, since the stock is up 260% in five years. Also pleasing for shareholders was the 29% gain in the last three months. This could be related to the recent financial results, released recently - you can catch up on the most recent data by reading our company report.

Check out our latest analysis for Genesis Minerals

We don't think Genesis Minerals's revenue of AU$64,454 is enough to establish significant demand. 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 Genesis Minerals will find or develop a valuable new mine before too long.

As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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. Some Genesis Minerals investors have already had a taste of the sweet taste stocks like this can leave in the mouth, as they gain popularity and attract speculative capital.

Genesis Minerals had cash in excess of all liabilities of just AU$1.8m when it last reported (June 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. Given how low on cash the it got, investors must really like its potential for the share price to be up 64% per year, over 5 years . You can click on the image below to see (in greater detail) how Genesis Minerals's cash levels have changed over time. The image below shows how Genesis Minerals's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

ASX:GMD Historical Debt, September 21st 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Given that situation, many of the best investors like to check if insiders have been 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.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Genesis Minerals'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. Genesis Minerals hasn't been paying dividends, but its TSR of 267% exceeds its share price return of 260%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

Genesis Minerals shareholders are up 4.9% for the year. Unfortunately this falls short of the market return. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 30% over five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.

If you are like me, then you will 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.