Strong week for Venus Metals (ASX:VMC) shareholders doesn't alleviate pain of three-year loss

For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Venus Metals Corporation Limited (ASX:VMC) shareholders have had that experience, with the share price dropping 45% in three years, versus a market return of about 23%.

The recent uptick of 15% could be a positive sign of things to come, so let's take a look at historical fundamentals.

View our latest analysis for Venus Metals

We don't think Venus Metals' revenue of AU$46,084 is enough to establish significant demand. 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. It seems likely some shareholders believe that Venus 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. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. 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).

Our data indicates that Venus Metals had AU$2.1m more in total liabilities than it had cash, when it last reported in June 2023. That makes it extremely high risk, in our view. But with the share price diving 13% per year, over 3 years , it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Venus Metals' balance sheet has changed over time; if you want to see the precise values, simply click on the image.

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. What if insiders are ditching the stock hand over fist? It would bother me, that's for sure. You can click here to see if there are insiders selling.

What About The Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Venus Metals' total shareholder return (TSR) and its share price return. 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 Venus Metals' TSR, at -6.0% is higher than its share price return of -45%. 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

It's nice to see that Venus Metals shareholders have received a total shareholder return of 46% over the last year. That's better than the annualised return of 8% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To that end, you should learn about the 5 warning signs we've spotted with Venus Metals (including 3 which are significant) .

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.