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Pensana Metals Ltd (ASX:PM8) shareholders should be happy to see the share price up 13% in the last quarter. But that cannot eclipse the less-than-impressive returns over the last three years. In fact, the share price is down 31% in the last three years, falling well short of the market return.
With zero revenue generated over twelve months, we don’t think that Pensana Metals has proved its business plan yet. This state of affairs suggests that venture capitalists won’t provide funds on attractive terms. 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 Pensana Metals 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 is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. 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.
When it reported in December 2018 Pensana Metals had minimal net cash consider its expenditure: just AU$1.6m 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 12% per year, over 3 years. The image below shows how Pensana Metals’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. What if insiders are ditching the stock hand over fist? It would bother me, that’s for sure. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
We’re pleased to report that Pensana Metals shareholders have received a total shareholder return of 20% over one year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 1.1% per year), it would seem that the stock’s performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
Of course Pensana Metals may not be the best stock to buy. So you may wish to see this free collection of growth stocks.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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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.