We think intelligent long term investing is the way to go. But no-one is immune from buying too high. To wit, the Silver Mines Limited (ASX:SVL) share price managed to fall 69% over five long years. That is extremely sub-optimal, to say the least. There was little comfort for shareholders in the last week as the price declined a further 11%.
With just AU$125,674 worth of revenue in twelve months, we don't think the market considers Silver Mines to have proven its business plan. You have to wonder why venture capitalists aren't funding it. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, investors may be hoping that Silver Mines finds some valuable resources, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered 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). Silver Mines has already given some investors a taste of the bitter losses that high risk investing can cause.
Silver Mines had liabilities exceeding cash by AU$1.6m when it last reported in June 2019, according to our data. That puts it in the highest risk category, according to our analysis. But since the share price has dived -21% per year, over 5 years , it looks like some investors think it's time to abandon ship, so to speak. You can see in the image below, how Silver Mines's cash levels have changed over time (click to see the values). You can see in the image below, how Silver Mines's cash levels have changed over time (click to see the values).
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. 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 Silver Mines's share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. We note that Silver Mines's TSR, at -63% is higher than its share price return of -69%. 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 Silver Mines shareholders have received a total shareholder return of 48% over the last year. Notably the five-year annualised TSR loss of 18% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. 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. Be aware that Silver Mines is showing 6 warning signs in our investment analysis , and 2 of those make us uncomfortable...
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 AU exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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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