One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, the Sonoro Metals Corp. (CVE:SMO) share price is up 85% in the last three years, clearly besting than the market return of around 15% (not including dividends). On the other hand, the returns haven’t been quite so good recently, with shareholders up just 8.8%.
Sonoro Metals hasn’t yet reported any revenue yet, so it’s as much a business idea as a business. 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 Sonoro Metals finds some valuable resources, before it runs out of money.
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 Sonoro Metals investors might know.
Sonoro Metals had net cash of just CA$166k when it last reported (September 2018). So if it hasn’t remedied the situation already, it will almost certainly have to raise more capital soon. Given how low on cash the it got, investors must really like its potential for the share price to be up 23% per year, over 3 years. The image belows shows how Sonoro Metals’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 usually a positive if they have, as it may indicate they see value in the stock. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
A Different Perspective
We’re pleased to report that Sonoro Metals shareholders have received a total shareholder return of 8.8% over one year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 2.9% per year), it would seem that the stock’s performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Sonoro Metals by clicking this link.
There are plenty of other companies that have insiders buying up shares. You probably do 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.