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Imagine Owning Silver City Minerals (ASX:SCI) While The Price Tanked 69%

If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. Long term Silver City Minerals Limited (ASX:SCI) shareholders know that all too well, since the share price is down considerably over three years. Unfortunately, they have held through a 69% decline in the share price in that time. And the ride hasn't got any smoother in recent times over the last year, with the price 27% lower in that time. The falls have accelerated recently, with the share price down 27% in the last three months.

See our latest analysis for Silver City Minerals

With just AU$252,141 worth of revenue in twelve months, we don't think the market considers Silver City Minerals to have proven its business plan. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Silver City 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. 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). Some Silver City Minerals investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Silver City Minerals had cash in excess of all liabilities of just AU$405k when it last reported (June 2019). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. That probably explains why the share price is down 32% per year, over 3 years . You can see in the image below, how Silver City Minerals's cash levels have changed over time (click to see the values). The image below shows how Silver City Minerals's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

ASX:SCI Historical Debt, February 18th 2020
ASX:SCI Historical Debt, February 18th 2020

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. What if insiders are ditching the stock hand over fist? It would bother me, that's for sure. You can click here to see if there are insiders selling.

A Different Perspective

While the broader market gained around 21% in the last year, Silver City Minerals shareholders lost 27%. 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 18% 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To that end, you should learn about the 6 warning signs we've spotted with Silver City Minerals (including 3 which is are a bit unpleasant) .

Silver City Minerals is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

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.

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. Thank you for reading.

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