Want to participate in a short research study? Help shape the future of investing tools and receive a $20 prize!
Even the best stock pickers will make plenty of bad investments. And unfortunately for Lustrum Minerals Limited (ASX:LRM) shareholders, the stock is a lot lower today than it was a year ago. The share price has slid 54% in that time. Because Lustrum Minerals hasn’t been listed for many years, the market is still learning about how the business performs. Furthermore, it’s down 42% in about a quarter, which is even more concerning.
Lustrum Minerals hasn’t yet reported any revenue yet, so it’s as much a business idea as a business. 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 more focused on would could be, than paying attention to the current revenues (or lack thereof). We’d posit some have faith that Lustrum Minerals will discover or develop new oil or gas reserves before too long.
As a general rule, if a company doesn’t have revenue, and it loses money, then it is a high risk investment. The 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. Some Lustrum Minerals investors have already had a taste of the bitterness stocks like this can leave in the mouth.
When it last reported its balance sheet in June 2018, Lustrum Minerals had net cash of AU$3.2m. That’s not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. With the share price down 54% in the last year, it seems likely that the need for cash is weighing on investors’ minds. The image belows 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. What if insiders are ditching the stock hand over fist? It would bother me, that’s for sure. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
While Lustrum Minerals shareholders are down 54% for the year, the market itself is up 8.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 42% 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. You might want to assess this data-rich visualization of its 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.
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 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. Thank you for reading.