Transition Metals (CVE:XTM) Shareholders Have Enjoyed A 57% Share Price Gain

By
Simply Wall St
Published
August 27, 2019
TSXV:XTM

The simplest way to invest in stocks is to buy exchange traded funds. But if you pick the right individual stocks, you could make more than that. To wit, the Transition Metals Corp. (CVE:XTM) share price is 57% higher than it was a year ago, much better than the market return of around -6.3% (not including dividends) in the same period. That's a solid performance by our standards! Unfortunately the longer term returns are not so good, with the stock falling 5.3% in the last three years.

Check out our latest analysis for Transition Metals

With just CA$104,491 worth of revenue in twelve months, we don't think the market considers Transition Metals to have proven its business plan. 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 Transition Metals 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 almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. 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). Transition Metals has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.

When it last reported its balance sheet in May 2019, Transition Metals could boast a strong position, with cash in excess of all liabilities of CA$719k. This gives management the flexibility to drive business growth, without worrying too much about cash reserves. And with the share price up 57% in the last year, the market is focussed on that blue sky potential. You can see in the image below, how Transition Metals's cash levels have changed over time (click to see the values).

TSXV:XTM Historical Debt, August 27th 2019
TSXV:XTM Historical Debt, August 27th 2019

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. Given that situation, many of the best investors like to check if insiders have been buying shares. It's often positive if so, assuming the buying is sustained and meaningful. You can click here to see if there are insiders buying.

A Different Perspective

It's good to see that Transition Metals has rewarded shareholders with a total shareholder return of 57% in the last twelve months. That certainly beats the loss of about 11% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

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 CA exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

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