If You Had Bought Talisman Mining (ASX:TLM) Shares Three Years Ago You'd Have A Total Return Of -18%

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Talisman Mining Limited (ASX:TLM) shareholders, since the share price is down 79% in the last three years, falling well short of the market return of around 37%. Even worse, it's down 18% in about a month, which isn't fun at all.

View our latest analysis for Talisman Mining

We don't think Talisman Mining's revenue of AU$442,000 is enough to establish significant demand. You have to wonder why venture capitalists aren't funding it. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, investors may be hoping that Talisman Mining finds some valuable resources, before it runs out of money.

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). It certainly is a dangerous place to invest, as Talisman Mining investors might realise.

Talisman Mining had cash in excess of all liabilities of just AU$451k when it last reported (June 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. With that in mind, you can understand why the share price dropped 41% per year, over 3 years . You can see in the image below, how Talisman Mining's cash levels have changed over time (click to see the values). The image below shows how Talisman Mining's 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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.

What about the Total Shareholder Return (TSR)?

We've already covered Talisman Mining's share price action, but we should also mention its total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Talisman Mining hasn't been paying dividends, but its TSR of -18% exceeds its share price return of -79%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

Talisman Mining shareholders gained a total return of 16% during the year. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 14% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Be aware that Talisman Mining is showing 6 warning signs in our investment analysis , and 3 of those make us uncomfortable...

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

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.

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