Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
E2 Metals Limited (ASX:E2M) shareholders have seen the share price descend 18% over the month. But that doesn't change the fact that the returns over the last year have been pleasing. After all, the share price is up a market-beating 57% in that time.
E2 Metals recorded just AU$34,576 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, investors may be hoping that E2 Metals finds some valuable resources, before it runs out of money.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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 do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). Of course, if you time it right, high risk investments like this can really pay off, as E2 Metals investors might know.
When it last reported its balance sheet in December 2018, E2 Metals could boast a strong position, with net cash of AU$3.1m. That allows management to focus on growing the business, and not worry too much about raising capital. And with the share price up 57% in the last year, the market is focussed on that blue sky potential. You can see in the image below, how E2 Metals's cash levels have changed over time (click to see the values).
Of course, the truth is that it is hard to value companies without much revenue or profit. However you can take a look at whether insiders have been buying up 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
E2 Metals shareholders should be happy with the total gain of 57% over the last twelve months. A substantial portion of that gain has come in the last three months, with the stock up 106% in that time. This suggests the company is continuing to win over new investors. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
We will like E2 Metals better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider 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 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.