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Introducing E2 Metals (ASX:E2M), The Stock That Zoomed 125% In The Last Year

Simply Wall St

Unless you borrow money to invest, the potential losses are limited. But if you pick the right business to buy shares in, you can make more than you can lose. For example, the E2 Metals Limited (ASX:E2M) share price has soared 125% return in just a single year. The last week saw the share price soften some 2.7%. We'll need to follow E2 Metals for a while to get a better sense of its share price trend, since it hasn't been listed for particularly long.

View our latest analysis for E2 Metals

E2 Metals recorded just AU$3,709 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 E2 Metals finds some valuable resources, before it runs out of money.

We think companies that have neither significant revenues nor profits are pretty 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Of course, if you time it right, high risk investments like this can really pay off, as E2 Metals investors might know.

When it last reported its balance sheet in June 2019, E2 Metals had cash in excess of all liabilities of AU$3.8m. 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 91% in the last year , the market is seems hopeful about the potential, despite the cash burn. You can see in the image below, how E2 Metals's cash levels have changed over time (click to see the values). You can click on the image below to see (in greater detail) how E2 Metals's cash levels have changed over time.

ASX:E2M Historical Debt, January 5th 2020

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. If they are buying a significant amount of shares, that's certainly a good thing. You can click here to see if there are insiders buying.

A Different Perspective

It's nice to see that E2 Metals shareholders have gained 125% over the last year. If you would like to research E2 Metals in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

Of course E2 Metals may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.