Investors in Pearl Gull Iron (ASX:PLG) from a year ago are still down 17%, even after 36% gain this past week

It's easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in Pearl Gull Iron Limited (ASX:PLG) have tasted that bitter downside in the last year, as the share price dropped 27%. That contrasts poorly with the market return of 8.5%. Pearl Gull Iron hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time.

On a more encouraging note the company has added AU$1.6m to its market cap in just the last 7 days, so let's see if we can determine what's driven the one-year loss for shareholders.

See our latest analysis for Pearl Gull Iron

Pearl Gull Iron 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? 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. It seems likely some shareholders believe that Pearl Gull Iron will find or develop a valuable new mine before too long.

Companies that lack both meaningful revenue and profits are usually considered high risk. 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).

Pearl Gull Iron had liabilities exceeding cash by AU$6.2m when it last reported in June 2022, according to our data. That makes it extremely high risk, in our view. But with the share price diving 27% in the last year , it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Pearl Gull Iron's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

In reality it's hard to have much certainty when valuing a business that has neither 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.

What About The Total Shareholder Return (TSR)?

We've already covered Pearl Gull Iron's share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. We note that Pearl Gull Iron's TSR, at -17% is higher than its share price return of -27%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

Given that the market gained 8.5% in the last year, Pearl Gull Iron shareholders might be miffed that they lost 17%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Putting aside the last twelve months, it's good to see the share price has rebounded by 88%, 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 Pearl Gull Iron better, we need to consider many other factors. For instance, we've identified 6 warning signs for Pearl Gull Iron (5 are potentially serious) that you should be aware of.

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. 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.