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The East Africa Metals (CVE:EAM) Share Price Is Up 79% And Shareholders Are Holding On

Simply Wall St

Stock pickers are generally looking for stocks that will outperform the broader market. And the truth is, you can make significant gains if you buy good quality businesses at the right price. To wit, the East Africa Metals share price has climbed 79% in five years, easily topping the market return of 1.1% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 23% in the last year.

View our latest analysis for East Africa Metals

East Africa Metals hasn't yet reported any revenue, so it's as much a business idea as an actual business. 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 East Africa Metals 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Of course, if you time it right, high risk investments like this can really pay off, as East Africa Metals investors might know.

Our data indicates that East Africa Metals had CA$2,491,652 more in total liabilities than it had cash, when it last reported in March 2019. That makes it extremely high risk, in our view. So the fact that the stock is up 12% per year, over 5 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 East Africa Metals's cash levels have changed over time. You can click on the image below to see (in greater detail) how East Africa Metals's cash levels have changed over time.

TSXV:EAM Historical Debt, July 30th 2019

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. However you can take a look at whether insiders have been buying up shares. It's usually a positive if they have, as it may indicate they see value in the stock. You can click here to see if there are insiders buying.

A Different Perspective

It's nice to see that East Africa Metals shareholders have received a total shareholder return of 23% over the last year. That gain is better than the annual TSR over five years, which is 12%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Before spending more time on East Africa Metals it might be wise to click here to see if insiders have been buying or selling shares.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA 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.