Yahoo Finance Did Business Growth Power Gold Road Resources's (ASX:GOR) Share Price Gain of 201%?
Gold Road Resources Limited (ASX:GOR) shareholders might be rather concerned because the share price has dropped 36% in the last month. But that scarcely detracts from the really solid long term returns generated by the company over five years. In fact, the share price is 201% higher today. We think it's more important to dwell on the long term returns than the short term returns. The more important question is whether the stock is too cheap or too expensive today.
See our latest analysis for Gold Road Resources
With just AU$104,000 worth of revenue in twelve months, we don't think the market considers Gold Road Resources 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. For example, investors may be hoping that Gold Road Resources finds some valuable resources, 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. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). 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 Gold Road Resources investors might know.
Our data indicates that Gold Road Resources had AU$185m more in total liabilities than it had cash, when it last reported in June 2019. That makes it extremely high risk, in our view. So the fact that the stock is up 73% per year, over 5 years shows that high risks can lead to high rewards, sometimes. It's clear more than a few people believe in the potential. The image below shows how Gold Road Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can see in the image below, how Gold Road Resources'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, many of the best investors like to check if insiders have been buying shares. It's usually a positive if they have, as it may indicate they see value in the stock. You can click here to see if there are insiders buying.
What about the Total Shareholder Return (TSR)?
We've already covered Gold Road Resources'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. We note that Gold Road Resources's TSR, at 205% is higher than its share price return of 201%. 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 Gold Road Resources shareholders have received a total shareholder return of 16% over the last year. However, that falls short of the 25% TSR per annum it has made for shareholders, each year, over five years. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. It's always interesting to track share price performance over the longer term. But to understand Gold Road Resources better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Gold Road Resources (of which 1 is a bit unpleasant!) you should know about.
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 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.
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. Thank you for reading.
