If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But long term Matachewan Consolidated Mines, Limited (CVE:MCM.A) shareholders have had a particularly rough ride in the last three year. So they might be feeling emotional about the 56% share price collapse, in that time. The more recent news is of little comfort, with the share price down 50% in a year.
With just CA$529,578 worth of revenue in twelve months, we don’t think the market considers Matachewan Consolidated Mines 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? 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 Matachewan Consolidated Mines will discover or develop fossil fuel 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. 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Matachewan Consolidated Mines has already given some investors a taste of the bitter losses that high risk investing can cause.
Matachewan Consolidated Mines has plenty of cash in the bank, with cash in excess of all liabilities sitting at CA$2.2m, when it last reported (September 2019). This gives management the flexibility to drive business growth, without worrying too much about cash reserves. But since the share price has dropped 24% per year, over 3 years , it seems like the market might have been over-excited previously. The image below shows how Matachewan Consolidated Mines’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 Matachewan Consolidated Mines’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’d like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.
What about the Total Shareholder Return (TSR)?
We’d be remiss not to mention the difference between Matachewan Consolidated Mines’s total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that Matachewan Consolidated Mines’s TSR, which was a 56% drop over the last 3 years, was not as bad as the share price return.
A Different Perspective
While the broader market gained around 13% in the last year, Matachewan Consolidated Mines shareholders lost 50%. 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 8.2% per year over five years. 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. It’s always interesting to track share price performance over the longer term. But to understand Matachewan Consolidated Mines better, we need to consider many other factors. Be aware that Matachewan Consolidated Mines is showing 2 warning signs in our investment analysis , you should know about…
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 CA exchanges.
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.
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