Passive investing in index funds can generate returns that roughly match the overall market. But you can significantly boost your returns by picking above-average stocks. To wit, the Kalamazoo Resources Limited (ASX:KZR) share price is 67% higher than it was a year ago, much better than the market return of around 5.0% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! We'll need to follow Kalamazoo Resources for a while to get a better sense of its share price trend, since it hasn't been listed for particularly long.
We don't think Kalamazoo Resources's revenue of AU$6,343 is enough to establish significant demand. So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). For example, investors may be hoping that Kalamazoo Resources finds some valuable resources, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered high risk. The 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Of course, if you time it right, high risk investments like this can really pay off, as Kalamazoo Resources investors might know.
Kalamazoo Resources had net cash of just AU$61k when it last reported (December 2018). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. Given how low on cash the it got, investors must really like its potential for the share price to be up 67% in the last year. You can click on the image below to see (in greater detail) how Kalamazoo Resources's cash and debt levels have changed over time.
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. 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
Kalamazoo Resources shareholders should be happy with the total gain of 67% over the last twelve months. A substantial portion of that gain has come in the last three months, with the stock up 26% in that time. This suggests the company is continuing to win over new investors. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
Of course Kalamazoo Resources may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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 email@example.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.