If You Had Bought McChip Resources (CVE:MCS) Stock Five Years Ago, You'd Be Sitting On A 62% Loss, Today
Statistically speaking, long term investing is a profitable endeavour. But no-one is immune from buying too high. Zooming in on an example, the McChip Resources Inc. (CVE:MCS) share price dropped 62% in the last half decade. We certainly feel for shareholders who bought near the top. It's down 11% in the last seven days.
Check out our latest analysis for McChip Resources
We don't think McChip Resources's revenue of CA$573,063 is enough to establish significant demand. You have to wonder why venture capitalists aren't funding it. 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 McChip Resources will discover or develop fossil fuel before too long.
We think companies that have neither significant revenues nor profits are pretty high risk. 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. Some McChip Resources investors have already had a taste of the bitterness stocks like this can leave in the mouth.
McChip Resources has plenty of cash in the bank, with cash in excess of all liabilities sitting at CA$3.5m, when it last reported (March 2019). This gives management the flexibility to drive business growth, without worrying too much about cash reserves. But since the share price has dropped 18% per year, over 5 years, it seems like the market might have been over-excited previously. The image below shows how McChip Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how McChip Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? It would bother me, that's for sure. You can click here to see if there are insiders selling.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of McChip Resources, it has a TSR of -56% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market lost about 0.1% in the twelve months, McChip Resources shareholders did even worse, losing 1.4% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. However, the loss over the last year isn't as bad as the 15% per annum loss investors have suffered over the last half decade. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. Before forming an opinion on McChip Resources you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.
We will like McChip Resources 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 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.
