Can You Imagine How Argonaut Resources’s (ASX:ARE) Shareholders Feel About The 20% Share Price Increase?
Argonaut Resources NL (ASX:ARE) shareholders might be rather concerned because the share price has dropped 31% in the last month. But at least the stock is up over the last three years. However, it’s unlikely many shareholders are elated with the share price gain of 20% over that time, given the rising market.
See our latest analysis for Argonaut Resources
Argonaut Resources hasn’t yet reported any revenue yet, so it’s as much a business idea as a business. 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 Argonaut Resources 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. 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 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).
Argonaut Resources had net cash of AU$3.9m when it last reported (December 2018). That’s not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. With the share price up 6.3% per year, over 3 years, the market is seems hopeful about the potential, despite the cash burn. You can see in the image below, how Argonaut Resources’s cash and debt levels have changed over time (click to see the values).
In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit. 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. 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)?
Investors should note that there’s a difference between Argonaut Resources’s total shareholder return (TSR) and its share price change, which we’ve covered above. 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. Argonaut Resources hasn’t been paying dividends, but its TSR of 21% exceeds its share price return of 20%, implying it has raised capital at a discount, which is deemed to provide value to shareholders.
A Different Perspective
Investors in Argonaut Resources had a tough year, with a total loss of 10.0%, against a market gain of about 8.0%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 2.5% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
But note: Argonaut Resources may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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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.
