It's possible to achieve returns close to the market-weighted average return by buying an index fund. A talented investor can beat the market with a diversified portfolio, but even then, some stocks will under-perform. While the Astro Resources NL (ASX:ARO) share price is down 33% over half a decade, the total return to shareholders (which includes dividends) was 122%. And that total return actually beats the market return of 66%. Unhappily, the share price slid 20% in the last week.
Astro Resources didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). 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 Astro Resources will find or develop a valuable new mine before too long.
We think companies that have neither significant revenues nor profits are pretty high risk. There was already a significant chance that they would need more money for business development, and indeed they recently put themselves at the mercy of capital markets and raised equity. 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.
Astro Resources had liabilities exceeding cash when it last reported, according to our data. That put it in the highest risk category, according to our analysis. But since the share price has dived 8% per year, over 5 years , it looks like some investors think it's time to abandon ship, so to speak, even though the cash reserves look a little better with the capital raising. You can click on the image below to see (in greater detail) how Astro Resources' 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. Would it bother you if insiders were selling the stock? I would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Astro Resources' 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. Astro Resources hasn't been paying dividends, but its TSR of 122% exceeds its share price return of -33%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
While the broader market gained around 2.1% in the last year, Astro Resources shareholders lost . However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 17% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 4 warning signs for Astro Resources you should be aware of, and 2 of them shouldn't be ignored.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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