Those Who Purchased BlackEarth Minerals (ASX:BEM) Shares A Year Ago Have A 43% Loss To Show For It

BlackEarth Minerals NL (ASX:BEM) shareholders will doubtless be very grateful to see the share price up 43% in the last quarter. But that doesn't change the reality of under-performance over the last twelve months. In fact, the price has declined 43% in a year, falling short of the returns you could get by investing in an index fund.

View our latest analysis for BlackEarth Minerals

With just AU$89,764 worth of revenue in twelve months, we don't think the market considers BlackEarth Minerals to have proven its business plan. You have to wonder why venture capitalists aren't funding it. As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. For example, investors may be hoping that BlackEarth Minerals finds some valuable resources, before it runs out of money.

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 usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets to raise equity. So the share price itself impacts the value of the shares (as it determines the cost of capital). 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).

When it reported in December 2019 BlackEarth Minerals had minimal cash in excess of all liabilities consider its expenditure: just AU$1.3m to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. That probably explains why the share price is down 43% in the last year. The image below shows how BlackEarth 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. Would it bother you if insiders were selling the stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

We doubt BlackEarth Minerals shareholders are happy with the loss of 43% over twelve months. That falls short of the market, which lost 3.0%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. Putting aside the last twelve months, it's good to see the share price has rebounded by 43%, in the last ninety days. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. It's always interesting to track share price performance over the longer term. But to understand BlackEarth Minerals better, we need to consider many other factors. For example, we've discovered 6 warning signs for BlackEarth Minerals (4 are a bit concerning!) that you should be aware of before investing here.

If you are like me, then you will not want to miss this free list of growing companies that insiders are 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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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. Thank you for reading.