The Alpha HPA Limited (ASX:A4N) share price is down a rather concerning 42% in the last month. But that doesn't change the fact that the returns over the last half decade have been spectacular. In fact, during that period, the share price climbed 833%. Impressive! Arguably, the recent fall is to be expected after such a strong rise. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain.
Anyone who held for that rewarding ride would probably be keen to talk about it.
With just AU$1,116,298 worth of revenue in twelve months, we don't think the market considers Alpha HPA 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, investors may be hoping that Alpha HPA finds some valuable resources, before it runs out of money.
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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Alpha HPA has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
When it reported in December 2019 Alpha HPA had minimal cash in excess of all liabilities consider its expenditure: just AU$4.2m to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. It's a testament to the popularity of the business plan that the share price gained 31% per year, over 5 years , despite the weak balance sheet. The image below shows how Alpha HPA's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can click on the image below to see (in greater detail) how Alpha HPA's cash levels have changed over time.
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. It's often positive if so, assuming the buying is sustained and meaningful. 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 Alpha HPA's total shareholder return (TSR) and its share price change, which we've covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. We note that Alpha HPA's TSR, at 863% is higher than its share price return of 833%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.
A Different Perspective
It's nice to see that Alpha HPA shareholders have received a total shareholder return of 12% over the last year. However, that falls short of the 57% 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 Alpha HPA better, we need to consider many other factors. For example, we've discovered 7 warning signs for Alpha HPA (3 are a bit concerning!) that you should be aware of before investing here.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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 email@example.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.
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