By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, Cluff Natural Resources Plc (LON:CLNR) shareholders have seen the share price rise 71% over three years, well in excess of the market return (15%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 9.1% in the last year.
Check out our latest analysis for Cluff Natural Resources
Cluff Natural Resources 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). 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 Cluff Natural Resources will discover or develop fossil fuel before too long.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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). Of course, if you time it right, high risk investments like this can really pay off, as Cluff Natural Resources investors might know.
Cluff Natural Resources had net cash of just UK£498k when it last reported (June 2018). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. It's a testament to the popularity of the business plan that the share price gained 20% per year, over 3 years, despite the weak balance sheet. You can click on the image below to see (in greater detail) how Cluff Natural Resources's cash and debt levels have changed over time.
Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, many of the best investors like to check if insiders have been 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 Cluff Natural Resources shareholders have received a total shareholder return of 9.1% over one year. There's no doubt those recent returns are much better than the TSR loss of 8.5% 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. You could get a better understanding of Cluff Natural Resources's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
For those who like to find winning investments this freelist of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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.