Some Renegade Exploration (ASX:RNX) Shareholders Have Taken A Painful 73% Share Price Drop
This month, we saw the Renegade Exploration Limited (ASX:RNX) up an impressive 100%. But that doesn't change the fact that the returns over the last three years have been stomach churning. To wit, the share price sky-dived 73% in that time. Arguably, the recent bounce is to be expected after such a bad drop. Of course the real question is whether the business can sustain a turnaround.
View our latest analysis for Renegade Exploration
Renegade Exploration recorded just AU$40,245 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. You have to wonder why venture capitalists aren't funding it. As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. For example, investors may be hoping that Renegade Exploration finds some valuable resources, 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Renegade Exploration has already given some investors a taste of the bitter losses that high risk investing can cause.
When it reported in December 2019 Renegade Exploration had minimal cash in excess of all liabilities consider its expenditure: just AU$479k to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. With that in mind, you can understand why the share price dropped 35% per year, over 3 years. The image below shows how Renegade Exploration'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. What if insiders are ditching the stock hand over fist? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Renegade Exploration'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. Renegade Exploration hasn't been paying dividends, but its TSR of -73% exceeds its share price return of -73%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
We regret to report that Renegade Exploration shareholders are down 25% for the year. Unfortunately, that's worse than the broader market decline of 15%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 18% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Renegade Exploration better, we need to consider many other factors. For instance, we've identified 6 warning signs for Renegade Exploration (3 make us uncomfortable) that you should be aware of.
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 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.
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