Long term investing can be life changing when you buy and hold the truly great businesses. And highest quality companies can see their share prices grow by huge amounts. Just think about the savvy investors who held Stroud Resources Ltd. (CVE:SDR) shares for the last five years, while they gained 390%. And this is just one example of the epic gains achieved by some long term investors. The last week saw the share price soften some 5.8%.
Stroud Resources recorded just CA$28,898 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 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 Stroud Resources will find or develop a valuable new mine 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 almost always a chance they will need to raise more capital, and their progress – and share price – will dictate how dilutive that is to current holders. While some such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). Stroud Resources has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
Stroud Resources had liabilities exceeding cash by CA$864k when it last reported in September 2019, according to our data. That makes it extremely high risk, in our view. So we’re surprised to see the stock up 50% per year, over 5 years , but we’re happy for holders. It’s clear more than a few people believe in the potential. You can see in the image below, how Stroud Resources’s cash levels have changed over time (click to see the values). The image below shows how Stroud Resources’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, 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).
A Different Perspective
It’s nice to see that Stroud Resources shareholders have received a total shareholder return of 63% over the last year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 37% per year), it would seem that the stock’s performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Be aware that Stroud Resources is showing 4 warning signs in our investment analysis , and 2 of those make us uncomfortable…
We will like Stroud Resources 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 CA 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.
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