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We think that it's fair to say that the possibility of finding fantastic multi-year winners is what motivates many investors. You won't get it right every time, but when you do, the returns can be truly splendid. Take, for example, the Spectrum Metals Limited (ASX:SPX) share price, which skyrocketed 400% over three years. And in the last month, the share price has gained 19%.
With just AU$1,083 worth of revenue in twelve months, we don't think the market considers Spectrum Metals 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. For example, investors may be hoping that Spectrum Metals finds some valuable resources, before it runs out of money.
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 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 Spectrum Metals investors might know.
When it reported in December 2018 Spectrum Metals had minimal cash in excess of all liabilities consider its expenditure: just AU$1.2m to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. It's a testament to the popularity of the business plan that the share price gained 71% per year, over 3 years, despite the weak balance sheet. You can click on the image below to see (in greater detail) how Spectrum Metals's cash levels have changed over time. You can click on the image below to see (in greater detail) how Spectrum Metals's cash 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. Given that situation, many of the best investors like to check if insiders have been buying shares. It's usually a positive if they have, as it may indicate they see value in the stock. 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 Spectrum Metals's total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Spectrum Metals hasn't been paying dividends, but its TSR of 400% exceeds its share price return of 400%, 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 Spectrum Metals shareholders have received a total shareholder return of 178% over the last year. That certainly beats the loss of about 6.7% per year over the last half decade. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. 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 are like me, then you will not want to miss this free list of growing companies that insiders are 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 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. Thank you for reading.