Investors ignore increasing losses at Ionic Rare Earths (ASX:IXR) as stock jumps 12% this past week

Ionic Rare Earths Limited (ASX:IXR) shareholders might be concerned after seeing the share price drop 17% in the last quarter. But that doesn't undermine the fantastic longer term performance (measured over five years). In fact, during that period, the share price climbed 443%. Impressive! So it might be that some shareholders are taking profits after good performance. Only time will tell if there is still too much optimism currently reflected in the share price. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 46% drop, in the last year.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

See our latest analysis for Ionic Rare Earths

Ionic Rare Earths recorded just AU$2,761,222 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. 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 Ionic Rare Earths finds some valuable resources, before it runs out of money.

We think companies that have neither significant revenues nor profits are pretty high risk. You should be aware that the company needed to issue more shares recently so that it could raise enough money to continue pursuing its business plan. While some companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Ionic Rare Earths has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.

Ionic Rare Earths only just had cash in excess of all liabilities when it last reported. So it is a good thing that the company has looked to remedy the situation by raising more capital recently. It's a testament to the popularity of the business plan that the share price gained 47% per year, over 5 years , despite the recent dilution. You can see in the image below, how Ionic Rare Earths' cash levels have changed over time (click to see the values).

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. One thing you can do is check if company insiders are buying shares. It's usually a positive if they have, as it may indicate they see value in the stock. You can click here to see if there are insiders buying.

A Different Perspective

Ionic Rare Earths shareholders are down 46% for the year, but the market itself is up 9.0%. 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 40% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Ionic Rare Earths better, we need to consider many other factors. Even so, be aware that Ionic Rare Earths is showing 3 warning signs in our investment analysis , you should know about...

But note: Ionic Rare Earths may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.