It is doubtless a positive to see that the Freehill Mining Limited (ASX:FHS) share price has gained some 47% in the last three months. But that doesn't change the fact that the returns over the last three years have been stomach churning. In that time the share price has melted like a snowball in the desert, down 77%. So it sure is nice to see a bit of an improvement. The thing to think about is whether the business has really turned around.
Freehill Mining 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). This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, investors may be hoping that Freehill Mining finds some valuable resources, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. We can see that they needed to raise more capital, and took that step recently despite the fact that it would have been dilutive to current holders. While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Freehill Mining has already given some investors a taste of the bitter losses that high risk investing can cause.
Freehill Mining had liabilities exceeding cash when it last reported, according to our data. That made it extremely high risk, in our view. But with the share price diving 38% per year, over 3 years , it's probably fair to say that some shareholders no longer believe the company will succeed or they are worried about dilution with the recent cash injection. You can click on the image below to see (in greater detail) how Freehill Mining's cash levels have changed over time.
It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Pleasingly, Freehill Mining's total shareholder return last year was 65%. That certainly beats the loss of about 37% per year over three years. The optimist would say this is evidence that the stock has bottomed, and better days lie ahead. 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. Take risks, for example - Freehill Mining has 6 warning signs (and 3 which shouldn't be ignored) we think you should know about.
Freehill Mining is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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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