While stock picking isn't easy, for those willing to persist and learn, it is possible to buy shares in great companies, and generate wonderful returns. When you buy and hold the right company, the returns can make a huge difference to both you and your family. For example, Immuron Limited (ASX:IMC) has generated a beautiful 387% return in just a single year. It's up an even more impressive 471% over the last quarter. It is also impressive that the stock is up 155% over three years, adding to the sense that it is a real winner.
With just AU$2,965,816 worth of revenue in twelve months, we don't think the market considers Immuron 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). For example, they may be hoping that Immuron comes up with a great new product, 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 to raise equity. 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). Of course, if you time it right, high risk investments like this can really pay off, as Immuron investors might know.
Immuron had cash in excess of all liabilities of AU$3.3m when it last reported (December 2019). 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. Given the share price has increased by a solid 51% in the last year , it's fair to say investors remain excited about the future, despite the potential need for cash. You can see in the image below, how Immuron's cash levels have changed over time (click to see the values).
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. However you can take a look at whether insiders have been buying up shares. It's usually a positive if they have, as it may indicate they see value in the stock. 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 Immuron'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 and spin-offs. Immuron hasn't been paying dividends, but its TSR of 387% exceeds its share price return of 387%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
It's nice to see that Immuron shareholders have received a total shareholder return of 387% over the last year. That's better than the annualised return of 19% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should learn about the 5 warning signs we've spotted with Immuron (including 2 which is are significant) .
We will like Immuron better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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