This week we saw the Metalo Manufacturing Inc. (CNSX:MMI) share price climb by 22%. But only the myopic could ignore the astounding decline over three years. Indeed, the share price is down a whopping 75% in the last three years. So it sure is nice to see a big of an improvement. The thing to think about is whether the business has really turned around.
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With zero revenue generated over twelve months, we don't think that Metalo Manufacturing has proved its business plan yet. 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 Metalo Manufacturing will find or develop a valuable new mine before too long.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Metalo Manufacturing has already given some investors a taste of the bitter losses that high risk investing can cause.
Our data indicates that Metalo Manufacturing had CA$13,680,777 more in total liabilities than it had cash, when it last reported in December 2018. That makes it extremely high risk, in our view. But with the share price diving 37% per year, over 3 years, it's probably fair to say that some shareholders no longer believe the company will succeed. You can see in the image below, how Metalo Manufacturing'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. What if insiders are ditching the stock hand over fist? It would bother me, that's for sure. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
The last twelve months weren't great for Metalo Manufacturing shares, which cost holders 8.3%, while the market was up about 1.5%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Unfortunately, the longer term story isn't pretty, with investment losses running at 37% per year over three years. We'd need clear signs of growth in the underlying business before we could muster much enthusiasm for this one. Before spending more time on Metalo Manufacturing it might be wise to click here to see if insiders have been buying or selling shares.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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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. Thank you for reading.