Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can significantly boost your returns by picking above-average stocks. To wit, the Reabold Resources Plc (LON:RBD) share price is 88% higher than it was a year ago, much better than the market return of around -1.1% (not including dividends) in the same period. So that should have shareholders smiling. And shareholders have also done well over the long term, with an increase of 63% in the last three years.
With just UK£194,000 worth of revenue in twelve months, we don't think the market considers Reabold Resources 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). It seems likely some shareholders believe that Reabold Resources will discover or develop fossil fuel 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 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). Reabold Resources has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
When it last reported its balance sheet in December 2018, Reabold Resources had cash in excess of all liabilities of UK£6.1m. 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 88% in the last year, its fair to say investors remain excited about the future, despite the potential need for cash. You can see in the image below, how Reabold Resources's cash levels have changed over time (click to see the values). The image below shows how Reabold Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, many of the best investors like to check if insiders have been buying shares. It's usually a positive if they have, as it may indicate they see value in the stock. You can click here to see if there are insiders buying.
A Different Perspective
It's good to see that Reabold Resources has rewarded shareholders with a total shareholder return of 88% in the last twelve months. Notably the five-year annualised TSR loss of 9.3% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. You could get a better understanding of Reabold Resources's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
Of course Reabold Resources 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 GB exchanges.
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.
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.