Castle Minerals Limited (ASX:CDT) shareholders will doubtless be very grateful to see the share price up 80% in the last quarter. But that doesn't change the fact that the returns over the last three years have been less than pleasing. After all, the share price is down 36% in the last three years, significantly under-performing the market.
With just AU$1,572 worth of revenue in twelve months, we don't think the market considers Castle Minerals to have proven its business plan. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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. It seems likely some shareholders believe that Castle Minerals will find or develop a valuable new mine 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. 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.
Castle Minerals had cash in excess of all liabilities of just AU$111k when it last reported (June 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. That probably explains why the share price is down 14% per year, over 3 years . The image below shows how Castle Minerals's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can see in the image below, how Castle Minerals's cash levels have changed over time (click to see the values).
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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
While the broader market gained around 19% in the last year, Castle Minerals shareholders lost 10.0%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 7.1% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. You could get a better understanding of Castle Minerals's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
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.
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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.