It certainly might concern AVZ Minerals Limited (ASX:AVZ) shareholders to see the share price down 38% in just 30 days. But that doesn't undermine the fantastic longer term performance (measured over five years). Indeed, the share price is up a whopping 750% in that time. So it might be that some shareholders are taking profits after good performance. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain.
It really delights us to see such great share price performance for investors.
AVZ Minerals recorded just AU$95,111 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. 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 AVZ Minerals 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. There was already a significant chance that they would need more money for business development, and indeed they recently put themselves at the mercy of capital markets and raised equity. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. AVZ Minerals has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
Our data indicates that AVZ Minerals had more in total liabilities than it had cash, when it last reported. That put it in the highest risk category, according to our analysis. So we're not surprised to see the stock up 33% per year, over 5 years , once the company took on some more capital. It's clear more than a few people believe in the potential. You can see in the image below, how AVZ Minerals's cash 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. Given that situation, many of the best investors like to check if insiders have been buying 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).
A Different Perspective
It's good to see that AVZ Minerals has rewarded shareholders with a total shareholder return of 6.3% in the last twelve months. However, that falls short of the 53% TSR per annum it has made for shareholders, each year, over five years. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. It's always interesting to track share price performance over the longer term. But to understand AVZ Minerals better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 7 warning signs with AVZ Minerals (at least 3 which are concerning) , and understanding them should be part of your investment process.
But note: AVZ Minerals 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.
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.
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.