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If You Had Bought Magnum Mining and Exploration (ASX:MGU) Stock Five Years Ago, You Could Pocket A 233% Gain Today

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It might be of some concern to shareholders to see the Magnum Mining and Exploration Limited (ASX:MGU) share price down 14% in the last month. But that doesn't change the fact that the returns over the last five years have been very strong. In fact, the share price is 233% higher today. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. Only time will tell if there is still too much optimism currently reflected in the share price.

See our latest analysis for Magnum Mining and Exploration

Magnum Mining and Exploration recorded just AU$19,357 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. 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. For example, investors may be hoping that Magnum Mining and Exploration finds some valuable resources, before it runs out of money.

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 such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). Of course, if you time it right, high risk investments like this can really pay off, as Magnum Mining and Exploration investors might know.

Our data indicates that Magnum Mining and Exploration had net debt of AU$621,454 when it last reported in December 2018. That puts it in the highest risk category, according to our analysis. So we're surprised to see the stock up 27% per year, over 5 years, but we're happy for holders. Investors must really like its potential. You can click on the image below to see (in greater detail) how Magnum Mining and Exploration's cash levels have changed over time.

ASX:MGU Historical Debt, May 10th 2019
ASX:MGU Historical Debt, May 10th 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 often positive if so, assuming the buying is sustained and meaningful. Luckily we are in a position to provide you with this free chart of insider buying (and selling).

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Magnum Mining and Exploration's total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Magnum Mining and Exploration hasn't been paying dividends, but its TSR of 250% exceeds its share price return of 233%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

It's nice to see that Magnum Mining and Exploration shareholders have received a total shareholder return of 25% over the last year. However, that falls short of the 28% TSR per annum it has made for shareholders, each year, over five years. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.

We will like Magnum Mining and Exploration better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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.

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