When you buy shares in a company, there is always a risk that the price drops to zero. But if you pick the right stock, you can make a lot more than 100%. For example, the Norwest Energy NL (ASX:NWE) share price has soared 200% in the last year. Most would be very happy with that, especially in just one year! It’s up an even more impressive 200% over the last quarter. This could be related to the recent financial results, released recently – you can catch up on the most recent data by reading our company report. It is also impressive that the stock is up 100% over three years, adding to the sense that it is a real winner.
Norwest Energy recorded just AU$502,206 in revenue over the last twelve months, which isn’t really enough for us to consider it to have a proven product. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Norwest Energy will discover or develop fossil fuel 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Of course, if you time it right, high risk investments like this can really pay off, as Norwest Energy investors might know.
Our data indicates that Norwest Energy had AU$452k more in total liabilities than it had cash, when it last reported in June 2019. That puts it in the highest risk category, according to our analysis. So the fact that the stock is up 73% in the last year shows that high risks can lead to high rewards, sometimes. It’s clear more than a few people believe in the potential. You can see in the image below, how Norwest Energy’s cash levels have changed over time (click to see the values). You can see in the image below, how Norwest Energy’s cash levels have changed over time.
In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit. Given that situation, many of the best investors like to check if insiders have been buying 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).
What about the Total Shareholder Return (TSR)?
Investors should note that there’s a difference between Norwest Energy’s total shareholder return (TSR) and its share price change, which we’ve covered above. 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. Norwest Energy hasn’t been paying dividends, but its TSR of 200% exceeds its share price return of 200%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
It’s nice to see that Norwest Energy shareholders have received a total shareholder return of 200% over the last year. That certainly beats the loss of about 8.5% per year over the last half decade. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
Of course Norwest Energy may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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 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. Thank you for reading.