U.S. Markets open in 4 hrs 1 min

Should Parkway Minerals (ASX:PWN) Be Disappointed With Their 100% Profit?

Simply Wall St

If you want to compound wealth in the stock market, you can do so by buying an index fund. But if you pick the right individual stocks, you could make more than that. For example, the Parkway Minerals NL (ASX:PWN) share price is up 100% in the last year, clearly besting the market return of around 20% (not including dividends). So that should have shareholders smiling. In contrast, the longer term returns are negative, since the share price is 50% lower than it was three years ago.

View our latest analysis for Parkway Minerals

We don't think Parkway Minerals's revenue of AU$109,361 is enough to establish significant demand. 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 Parkway Minerals will significantly advance the business plan 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 almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. 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 Parkway Minerals investors might know.

Our data indicates that Parkway Minerals had AU$162k more in total liabilities than it had cash, when it last reported in June 2019. That makes it extremely high risk, in our view. So the fact that the stock is up 100% in the last year shows that high risks can lead to high rewards, sometimes. Investors must really like its potential. You can see in the image below, how Parkway Minerals'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 Parkway Minerals's cash levels have changed over time.

ASX:PWN Historical Debt, January 21st 2020

Of course, the truth is that it is hard to value companies without much revenue or profit. One thing you can do is check if company insiders are buying shares. It's often positive if so, assuming the buying is sustained and meaningful. You can click here to see if there are insiders buying.

A Different Perspective

We're pleased to report that Parkway Minerals shareholders have received a total shareholder return of 100% over one year. That certainly beats the loss of about 27% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Be aware that Parkway Minerals is showing 7 warning signs in our investment analysis , and 3 of those are concerning...

But note: Parkway 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 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.