When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, you can make far more than 100% on a really good stock. For example, the Horizon Minerals Limited (ASX:HRZ) share price has soared 125% in the last half decade. Most would be very happy with that. On top of that, the share price is up 17% in about a quarter. This could be related to the recent financial results, released recently - you can catch up on the most recent data by reading our company report.
With just AU$241,406 worth of revenue in twelve months, we don't think the market considers Horizon Minerals to have proven its business plan. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Horizon Minerals will find or develop a valuable new mine before too long.
Companies that lack both meaningful revenue and profits are usually considered high risk. 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). Some Horizon Minerals investors have already had a taste of the sweet taste stocks like this can leave in the mouth, as they gain popularity and attract speculative capital.
When it reported in June 2019 Horizon Minerals had minimal cash in excess of all liabilities consider its expenditure: just AU$1.7m to be specific. 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 91% per year, over 5 years . You can see in the image below, how Horizon Minerals's cash levels have changed over time (click to see the values). You can see in the image below, how Horizon Minerals's cash levels have changed over time (click to see the values).
Of course, the truth is that it is hard to value companies without much revenue or profit. 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. You can click here to see if there are insiders buying.
A Different Perspective
Investors in Horizon Minerals had a tough year, with a total loss of 10.0%, against a market gain of about 16%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 18%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Horizon Minerals by clicking this link.
There are plenty of other companies that have insiders buying up shares. You probably do 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.