For many, the main point of investing in the stock market is to achieve spectacular returns. When you buy and hold the right company, the returns can make a huge difference to both you and your family. For example, the Atrum Coal Limited (ASX:ATU) share price rocketed moonwards 375% in just one year. It's also up 27% in about a month. We note that Atrum Coal reported its financial results recently; luckily, you can catch up on the latest revenue and profit numbers in our company report. Zooming out, the stock is actually down 53% in the last three years.
With just AU$14,932 worth of revenue in twelve months, we don't think the market considers Atrum Coal to have proven its business plan. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, investors may be hoping that Atrum Coal 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. Atrum Coal 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 June 2019, Atrum Coal had cash in excess of all liabilities of AU$20m. 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. With the share price up 375% in the last year, the market is seems hopeful about the potential, despite the cash burn. You can click on the image below to see (in greater detail) how Atrum Coal's cash levels have changed over time. The image below shows how Atrum Coal's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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. 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
It's good to see that Atrum Coal has rewarded shareholders with a total shareholder return of 375% in the last twelve months. That certainly beats the loss of about 22% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
Atrum Coal is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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 firstname.lastname@example.org. 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.