The one-year returns have been notable for Xanadu Mines (ASX:XAM) shareholders despite underlying losses increasing

These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the Xanadu Mines Limited (ASX:XAM) share price is 60% higher than it was a year ago, much better than the market return of around 9.9% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! On the other hand, longer term shareholders have had a tougher run, with the stock falling 12% in three years.

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

View our latest analysis for Xanadu Mines

We don't think Xanadu Mines' revenue of AU$4,168,000 is enough to establish significant demand. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Xanadu Mines 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. 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. Xanadu Mines has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.

Xanadu Mines had cash in excess of all liabilities of when it last reported. While that's nothing to panic about, the company did raise more capital recently, bolstering the balance sheet since profits are not yet a reality. Given the share price has increased by a solid 119% in the last year , it's fair to say investors remain excited about the future with some additional cash available. You can click on the image below to see (in greater detail) how Xanadu Mines' cash levels have changed over time.

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. If they are buying a significant amount of shares, that's certainly a good thing. You can click here to see if there are insiders buying.

A Different Perspective

We're pleased to report that Xanadu Mines shareholders have received a total shareholder return of 60% over one year. There's no doubt those recent returns are much better than the TSR loss of 7% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. It's always interesting to track share price performance over the longer term. But to understand Xanadu Mines better, we need to consider many other factors. Take risks, for example - Xanadu Mines has 5 warning signs we think you should be aware of.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.