Investing in stocks inevitably means buying into some companies that perform poorly. But long term Eclipse Metals Limited (ASX:EPM) shareholders have had a particularly rough ride in the last three year. Unfortunately, they have held through a 67% decline in the share price in that time. The more recent news is of little comfort, with the share price down 67% in a year. Shareholders have had an even rougher run lately, with the share price down 50% in the last 90 days.
See our latest analysis for Eclipse Metals
With just AU$5,016 worth of revenue in twelve months, we don’t think the market Eclipse Metals has proven its business plan. We can’t help wondering why it’s publicly listed so early in its journey. Are venture capitalists not interested? 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. For example, they may be hoping that Eclipse Metals finds oil or gas with an exploration program, before it runs out of money.
As a general rule, if a company doesn’t have much revenue, and it loses money, then it is a high risk investment. 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Some Eclipse Metals investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Eclipse Metals had net cash of just AU$196k when it last reported (June 2018). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. That probably explains why the share price is down 31% per year, over 3 years. You can see in the image below, how Eclipse Metals’s cash and debt levels have changed over time (click to see the values).
ASX:EPM Historical Debt, March 7th 2019It 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? It would bother me, that’s for sure. 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 Eclipse Metals’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. We note that Eclipse Metals’s TSR, at -67% is higher than its share price rise of -67%. When you consider it hasn’t been paying a dividend, this data suggests shareholders may have had the opportunity to acquire attractively priced shares in a discounted capital raising.
A Different Perspective
Investors in Eclipse Metals had a tough year, with a total loss of 67%, against a market gain of about 11%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 11% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. You could get a better understanding of Eclipse Metals’s growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
But note: Eclipse Metals may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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.
