Did Changing Sentiment Drive Broken Hill Prospecting's (ASX:BPL) Share Price Down A Worrying 61%?

If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But long term Broken Hill Prospecting Limited (ASX:BPL) shareholders have had a particularly rough ride in the last three year. Sadly for them, the share price is down 61% in that time. And more recent buyers are having a tough time too, with a drop of 56% in the last year. And the share price decline continued over the last week, dropping some 16%.

Check out our latest analysis for Broken Hill Prospecting

Broken Hill Prospecting recorded just AU$106,568 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Broken Hill Prospecting will find or develop a valuable new mine before too long.

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. Some Broken Hill Prospecting investors have already had a taste of the bitterness stocks like this can leave in the mouth.

When it reported in December 2018 Broken Hill Prospecting had minimal cash in excess of all liabilities consider its expenditure: just AU$915k to be specific. So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. With that in mind, you can understand why the share price dropped 27% per year, over 3 years. The image below shows how Broken Hill Prospecting'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 would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Broken Hill Prospecting's total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Broken Hill Prospecting hasn't been paying dividends, but its TSR of -61% exceeds its share price return of -61%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

Investors in Broken Hill Prospecting had a tough year, with a total loss of 56%, against a market gain of about 7.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 7.0% per year over five years. We realise that Buffett 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 businesses. You might want to assess this data-rich visualization of its 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.

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 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. Thank you for reading.