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It’s nice to see the Lustrum Minerals Limited (ASX:LRM) share price up 15% in a week. But that’s not enough to compensate for the decline over the last twelve months. Like a receding glacier in a warming world, the share price has melted 52% in that period. So the bounce should be viewed in that context. Arguably, the fall was overdone.
With zero revenue generated over twelve months, we don’t think that Lustrum Minerals has proved its business plan yet. 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). For example, they may be hoping that Lustrum Minerals finds fossil fuels with an exploration program, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered high risk. 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. It certainly is a dangerous place to invest, as Lustrum Minerals investors might realise.
When it last reported its balance sheet in December 2018, Lustrum Minerals had cash in excess of all liabilities of AU$2.3m. While that’s nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. We’d venture that shareholders are concerned about the need for more capital, because the share price has dropped 52% in the last year. The image below shows how Lustrum Minerals’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. 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 costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Given that the market gained 12% in the last year, Lustrum Minerals shareholders might be miffed that they lost 52%. While the aim is to do better than that, it’s worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 10.0% over the last three months, the market doesn’t seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we’d remain pretty wary until we see some strong business performance. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
We will like Lustrum Minerals better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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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