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Easy Come, Easy Go: How San Marco Resources (CVE:SMN) Shareholders Got Unlucky And Saw 78% Of Their Cash Evaporate

Simply Wall St

San Marco Resources Inc. (CVE:SMN) shareholders should be happy to see the share price up 29% in the last quarter. But that is meagre solace in the face of the shocking decline over three years. Indeed, the share price is down a whopping 78% in the last three years. So we're relieved for long term holders to see a bit of uplift. But the more important question is whether the underlying business can justify a higher price still.

Check out our latest analysis for San Marco Resources

San Marco Resources didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that San Marco Resources 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 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Some San Marco Resources investors have already had a taste of the bitterness stocks like this can leave in the mouth.

San Marco Resources had cash in excess of all liabilities of just CA$386k when it last reported (February 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. That probably explains why the share price is down 39% per year, over 3 years. You can see in the image below, how San Marco Resources's cash levels have changed over time (click to see the values). You can see in the image below, how San Marco Resources's cash levels have changed over time (click to see the values).

TSXV:SMN Historical Debt, July 25th 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. What if insiders are ditching the stock hand over fist? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.

A Different Perspective

While the broader market gained around 1.7% in the last year, San Marco Resources shareholders lost 63%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 18% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Before spending more time on San Marco Resources it might be wise to click here to see if insiders have been buying or selling shares.

But note: San Marco Resources may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.