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Should Gas2Grid (ASX:GGX) Be Disappointed With Their 100% Profit?

Simply Wall St

One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at Gas2Grid Limited (ASX:GGX), which is up 100%, over three years, soundly beating the market return of 22% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 50%.

Check out our latest analysis for Gas2Grid

With just AU$1,228 worth of revenue in twelve months, we don't think the market considers Gas2Grid to have proven its business plan. 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 Gas2Grid will discover or develop fossil fuel 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. 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Gas2Grid has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.

Gas2Grid had liabilities exceeding cash by AU$10m when it last reported in June 2019, according to our data. That puts it in the highest risk category, according to our analysis. So we're surprised to see the stock up 100% per year, over 3 years , but we're happy for holders. It's clear more than a few people believe in the potential. You can see in the image below, how Gas2Grid's cash levels have changed over time (click to see the values). The image below shows how Gas2Grid's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

ASX:GGX Historical Debt, November 19th 2019

Of course, the truth is that it is hard to value companies without much 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. Luckily we are in a position to provide you with this free chart of insider buying (and selling).

A Different Perspective

We're pleased to report that Gas2Grid shareholders have received a total shareholder return of 50% over one year. There's no doubt those recent returns are much better than the TSR loss of 13% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.