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Emerald Resources NL (ASX:EMR) shareholders might be concerned after seeing the share price drop 15% in the last month. On the bright side the returns have been quite good over the last half decade. It has returned a market beating 100% in that time.
We don't think Emerald Resources's revenue of AU$189,079 is enough to establish significant demand. 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 Emerald Resources 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 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 Emerald Resources 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.
When it reported in December 2019 Emerald Resources had minimal cash in excess of all liabilities consider its expenditure: just AU$7.9m to be specific. 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 100% per year, over 5 years . You can click on the image below to see (in greater detail) how Emerald Resources's cash levels have changed over time. You can click on the image below to see (in greater detail) how Emerald Resources's cash levels have changed over time.
Of course, the truth is that it is hard to value companies without much revenue or profit. One thing you can do is check if company insiders are buying shares. It's often positive if so, assuming the buying is sustained and meaningful. You can click here to see if there are insiders buying.
A Different Perspective
While it's certainly disappointing to see that Emerald Resources shares lost 2.4% throughout the year, that wasn't as bad as the market loss of 12%. Longer term investors wouldn't be so upset, since they would have made 15%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Emerald Resources has 6 warning signs (and 2 which shouldn't be ignored) we think you should know about.
But note: Emerald 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 AU exchanges.
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.
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. Thank you for reading.