These days it’s easy to simply buy an index fund, and your returns should (roughly) match the market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the Archer Materials Limited (ASX:AXE) share price is 93% higher than it was a year ago, much better than the market return of around 20% (not including dividends) in the same period. That’s a solid performance by our standards! Also impressive, the stock is up 88% over three years, making long term shareholders happy, too.
We don’t think Archer Materials’s revenue of AU$97,604 is enough to establish significant demand. 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 Archer Materials 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. 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. Of course, if you time it right, high risk investments like this can really pay off, as Archer Materials investors might know.
When it reported in June 2019 Archer Materials had minimal cash in excess of all liabilities consider its expenditure: just AU$64k to be specific. So if it hasn’t remedied the situation already, it will almost certainly have to raise more capital soon. It’s a testament to the popularity of the business plan that the share price gained 103% in the last year , despite the weak balance sheet. You can see in the image below, how Archer Materials’s cash levels have changed over time (click to see the values). You can click on the image below to see (in greater detail) how Archer Materials’s cash levels have changed over time.
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. However you can take a look at whether insiders have been buying up 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 Archer Materials shareholders have received a total shareholder return of 93% over one year. That gain is better than the annual TSR over five years, which is 1.6%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. If you would like to research Archer Materials in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
But note: Archer Materials may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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 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.
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. Thank you for reading.